Interactive Investor

ii view: JD Sports warning triggers share price crash

An unscheduled trading update has seen investors in this FTSE 100 company running for cover. We assess prospects.

4th January 2024 11:24

Keith Bowman from interactive investor

Trading update for the 22 weeks to 30 December

  • Currency adjusted organic revenue growth of 6% 
  • Like-for-like sales growth of 1.8%

Guidance:

  • Now expects full-year profit before tax and adjusted items of between £915 million and £935 million, down from a previous £1.04 billion 

Chief executive Régis Schultz said:

“Our key markets have seen increased promotional activity during the peak trading season, driven by a more cautious consumer, but we continue to grow market share. 

“We are confident in our strategy and we continue to invest in our supply chain, systems and stores, supported by our strong cash generation and healthy balance sheet."

ii round-up:

Global sports fashion retailer JD Sports Fashion (LSE:JD.) today reduced profit hopes because of disappointing sales caused by mild weather plus increased promotional costs given cautious consumer spending. 

As such, management now expects full-year profit before tax and adjusted items of between £915 million and £935 million, down from a previous £1.04 billion.

Shares in the FTSE 100 retailer tumbled as much as 25% in UK trading having gained by 29% during 2023. That compares to gains of 15% or less for US sports retailers Foot Locker Inc (NYSE:FL) and Dick's Sporting Goods Inc (NYSE:DKS) and product makers Nike Inc Class B (NYSE:NKE) and adidas AG (XETRA:ADS)

JD, whose sales are split relatively evenly between the UK, Europe and the US, detailed currency adjusted organic revenue growth of 6% for the 22 weeks to late December, with like-for-like sales growth of 1.8% - outcomes slightly below prior management hopes. 

The retailer expects organic revenue growth for the year to 3 February of around 8%, that’s down from the prior year’s growth of 12%. 

A full-year trading update is planned for March with full-year results likely to be announced in May. 

ii view:

Headquartered in Bury, Manchester, the FTSE 100 retailer operates over 3,300 stores in more than 35 different countries. Employing around 75,000 people, footwear generates most of its sporting sales at just over half, followed by apparel at almost a third and accessories much of the balance. JD also operates outdoor brands in the UK such as Blacks, Millets and Go Outdoors accounting for around 5% of overall group revenues.  

For investors, pressured consumer spending given elevated borrowing costs is now clearly impacting business, and uncontrollable factors such as the weather can also hinder performance. Sporting goods makers such as Nike are looking to build on their own direct relationship with consumers, particularly online, while a forecast dividend yield of under 1% contrasts with yields of over 3% for fellow retailers Tesco (LSE:TSCO), Sainsbury (J) (LSE:SBRY), and Kingfisher (LSE:KGF)

More favourably, JD enjoys both brand and geographical diversity and new stores continue to be opened, with around 200 expected this financial year. Bolt-on acquisitions are still being found as shown by its previous acquisition of French sportswear retailer Courir, while net cash held of over £1 billion as of late July and its interim results suggests a robust balance sheet.  

In all, highlighted growth in market share for this major UK and overseas retailer should bode well for the future. Today's crash may tempt those comfortable with greater risk to go bargain hunting, although more cautious investors are likely to await evidence of a profit recovery before diving in.   

Positives: 

  • Diversity of product, brand name and geographical location
  • Continued new store openings 

Negatives:

  • Uncertain economic outlook
  • Subject to currency movements

The average rating of stock market analysts:

Buy

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