JD Sports, one of the UK’s leading sportswear retailers, has seen its shares fall to their lowest level in more than two years. The decline follows the company’s announcement that full-year profits are expected to be at the lower end of its guidance range due to weak consumer demand and unseasonal weather conditions.

Profit Forecast Adjusted

JD Sports revised its full-year pre-tax profit expectations to the lower end of £955 million to £1.035 billion, citing “much softer demand” towards the end of the quarter. This marks a slight drop compared to the £917 million profit recorded last year.

Impact of US Market and Election Uncertainty

A significant factor in JD Sports’ challenges is the suppressed demand in the US, which the retailer attributed to uncertainty surrounding the recent election. Chief Executive Régis Schultz said, “We have seen evidence of suppressed demand in the US ahead of the election.”

• North America Sales Dip: Like-for-like sales in North America fell 1.5% during the 13 weeks to November 2, compared to a 1.8% rise for the year to date.
• Global Revenue Decline: Group-wide revenue fell slightly by 0.3% over the quarter.

Global Expansion Amid Challenges

Despite the dip in demand, JD Sports continues its global expansion strategy:

• Store Openings: The retailer opened 79 stores in the last quarter, bringing its total number of outlets to 4,541 globally.
• US Acquisition: Earlier this year, JD Sports acquired Hibbett, a New York-listed rival, in a $1.1 billion deal, adding 1,179 stores to its portfolio.

Pressure from Key Brand Partners

JD Sports’ main suppliers, Nike and Adidas, have faced significant challenges due to declining consumer demand:

• Nike Struggles: Nike shares dropped by 20% earlier this year after a profit warning, with a 10% decline in quarterly sales prompting the brand to withdraw its full-year forecasts.
• Adidas Challenges: Similarly, Adidas has struggled to recover from weakened global demand.

Despite these pressures, Schultz remains optimistic about Nike, calling it a “strong brand” and expressing confidence in its recovery.

Regional Highlights and Sector Performance

• European Growth: Europe delivered strong results, achieving both like-for-like and organic sales growth.
• Outdoor and Sporting Goods: Sales in these categories rose by 6%, offsetting weaker performance in other segments.

However, like-for-like sales at JD-branded stores dropped 1.6% compared to the same period last year.

Market Reaction

The news triggered a significant market response:

• Share Drop: JD Sports shares fell by 16.6% in London trading, marking their weakest level since October 2022.
• Year-to-Date Decline: Shares have fallen more than 40% in 2023, reflecting ongoing investor concerns.

What’s Next for JD Sports?

JD Sports remains committed to its global expansion plans, including its recent talks to acquire French sports retailer Courir for €520 million. The company’s resilience in Europe and its ongoing investments in new markets suggest that it aims to weather the current challenges and position itself for long-term growth.

The coming months will test whether these strategies can help JD Sports recover from the headwinds facing both the company and the broader retail sector.

Source: (FT.com)