JD Sports sees £2bn wiped off market value but analysts are holding out hope
JD Sports has not started the new year on the right foot. Nearly £2bn has been wiped off the firm’s market value after it posted an unusually weak Christmas performance.
A warning from the ‘king of trainers’ that it would struggle to meet its ambitious £1bn profit target kicked the retailer’s share price down by 25 per cent today.
Bosses at the sportswear and shoe favourite blamed unseasonable weather at the start of the autumn and “softer” trading over the Christmas period for its very slight 1.8 per cent increase in like-for-like sales growth.
A warmer than usual start to the winter period has been a hindrance for many rival brands, including Superdry who last month blamed the weatherman for its 41.1 per cent drop in wholesale earnings at its latest trading update.
Victoria Scholar, head of investment at Interactive Investor, described today’s results as a “reality check” for the firm.
“Until now it has felt like JD Sports has been successfully navigating the pressures from the cost-of-living crisis. But today is somewhat of a reality check, highlighting that sports goods demand is waning and it is hurting the big players in the space.
“Pressures from the cost-of-living crisis have dampened consumers’ appetite to spend on retail. As a result JD Sports has been forced to offer more promotions and discounts which are eating away at its margins,” she explained.
Its winter performance has likely left the experts wondering if chief Régis Schultz’s plans to transform the firm into a ‘powerhouse’ in the athleisure space will be able to come to fruition amid a challenging period for retail.
In February, JD said it would spend up to £3bn pounds to open as many as 1,750 stores over five years. And the company has also been bolstered by a number of lucrative acquisitions.
Jonathan De Mello, head of JDM Retail, also said that strong promotional activity in core markets is one reason for lower than expected profits.
He explained: “Discounting was more prevalent in Sportswear in the run up to Christmas, with few new product launches to get shoppers excited about.
“This again is in contrast to Next and also Frasers; both of which have grown rapidly in recent years through acquisition and diversification. “
He added: “Frasers have seen great success through their physical retail elevation strategy, and could not have done so without the suite of brands they now have access to – many of which they own outright.”
But while investors gave the firm’s stock value a beating today, analysts have said faith should still remain in the trainer champion.
Analysts at Peel Hunt rated the firm a ‘Buy’ today and said that there was “no change to JD being a top class company”.
They explained: “The medium- and long-term targets are still firmly in place here, and why wouldn’t they be? Most of the downside in the forecasts has come from macro trends making customers cautious and minded to shop the sale, plus a dull launch calendar and warm weather.
“JD has gone early in terms of reporting on Christmas and we would be surprised if other retailers were feeling different trends. “
They added: “We must not lose sight of JD’s global position today. It is one of very few sports fashion retailers with a genuinely global presence and its relationships with suppliers, which are absolutely crucial in this industry, are literally second to none.
“It has a rapid new store opening programme and the ability to continue to win LFL market share.”