Shares of Bury-based FTSE 100 retailer JD Sports Fashion plc fell as much as 15% after it published a third quarter trading update for the 13 weeks to November 2, 2024.

JD Sports said that amid a “volatile trading environment, and following October trading” it now expects profit before tax and adjusting items to be “at the lower end” of its original guidance range of £955 million to £1,035 billion.

Shares of the Bury company have fallen about 40% this year, reducing its stock market value to under £5 billion.

JD Sports CEO Régis Schultz said: “After a good start to the period, helped by strong back-to-school sales, we saw increased trading volatility in October, particularly in North America and the UK, reflecting elevated promotional activity and mild weather.

“Against this backdrop, we maintained our commercial discipline, improving gross margin by 0.3%pts while still delivering 5.4% organic sales growth. In addition, we made further, strong progress on our long-term growth strategy including opening 79 new JD stores across the world.

“We have performed well in the key trading events this year and we are well positioned for the upcoming peak season. The trading environment remains volatile though and, following October trading, we now anticipate full year profit to be at the lower end of our guidance range.”

JD Sports said in its update: “We had a strong back-to-school period but we saw much softer consumer demand and trading toward the end of the period, reflecting elevated promotional activity, unseasonable weather and a cautious consumer, with evidence supporting suppressed demand in the US ahead of the election.

“Against this backdrop, we maintained our operating discipline to deliver on our long-term commercial strategy rather than a short-term sales focus. As a result, gross margin for the Group in the period increased 0.3%pts to 48.1% with the year-to-date gross margin for the Group now at 48.2%, in line with the corresponding period.

“Driven by our successful store rollout programme, organic sales growth in the period was 5.4% with year-to-date organic sales growth of 6.1%. The more volatile environment was reflected in like-for-like (LFL) sales for the period down 0.3% with a good August and September offset by a softer October.

“At the end of the period, year-to-date LFL sales growth was 0.5%. On a LFL basis, stores continued to outperform online and footwear continued to outperform apparel in the period.

“All segments achieved organic sales growth in the period, driven by new space growth in JD and Complementary Concepts, and by LFL sales growth in Sporting Goods & Outdoor. Regionally, Europe performed well, delivering both LFL sales growth and organic sales growth, with softer trading in the period being seen elsewhere.  

“We also made strong strategic progress. In the period, we opened 79 new JD stores, taking the total number of openings by the end of Q3 to 181, highlighting the ongoing success of our global JD store rollout programme. The total number of stores at the period end was 4,541, up 1,224 from the start of the year, including 1,179 stores acquired with Hibbett. 

“We have also made good progress on the process to complete the acquisition of Courir. Following the satisfaction of all regulatory conditions, we now anticipate this transaction will complete shortly, adding a strong and growing, female-orientated fascia to complement our global portfolio.

“Given the volatile trading environment, and following October trading, we now expect Profit before tax and adjusting items (PBT) to be at the lower end of our original guidance range of £955-1035m. Within this full year guidance, we still expect Hibbett to contribute around £25m to PBT and, at current exchange rates, for currency to reduce PBT by £15m, compared to the rates used in setting the original guidance.”

REACTION:

Richard Hunter, Head of Markets at Interactive Investor: “JD Sports did little to assuage more recent investor concerns which have weighed heavily on the share price and continue to do so, while offering a cautious outlook ahead of its upcoming peak season.

“Mild weather, a cautious US consumer ahead of the US election and ongoing promotional activity which reduces margins came together to suppress numbers for the period. Foreign exchange headwinds were another drag, expected to remove £15 million from full-year profit, and volatile October trading worked against the progress which had been made in August and September.

“Group like for like revenues in the period fell by 0.3%, with the important UK and US markets dipping by 2.4% and 1.5% respectively, although there was some respite from Europe where sales grew by 3.5%. On an organic basis, the signs were more promising with an increase of 5.4% overall, while gross margin increased by 0.3% to 48.1%. As such, the group estimates that pre-tax profit for the year will be at the lower end of the previously guided range of £955 million to £1.035 billion.

“The most promising and obvious opportunity in the medium term is JD’s growing brand presence in the major US market. The group recently completed the £900 million acquisition of US retailer Hibbett, which should further propel brand awareness, especially in the southeastern corner of the country.

“North American revenues already account for 35% of the group total, and once Hibbett is fully integrated, this is expected to rise to 40%. The £450 million purchase of French retailer Courir has also received the European regulatory green light, although of course the group’s acquisition strategy does not come without risk, particularly at a time when there are questions over the resilience of the consumer on both sides of the pond.

“The share price has had a difficult run of late, having fallen by 19% over the last year, as compared to a gain of 8% for the wider FTSE100, not helped by the slight deterioration in its gross margin, impacted by the high levels of discounting which it found necessary to implement given the broader challenges and a previous profit warning from key supplier Nike.

“Even so, the prospects for US growth and an acquisition strategy which has so far yielded some impressive results has been enough to keep investors onside, with the market consensus of the shares standing firm at a buy.”

Aarin Chiekrie, equity analyst, Hargreaves Lansdown: “After a strong start to the period, helped by back-to-school sales, the ‘King of Trainers’ is having to lace up and work hard to drive sales higher. Trading volatility picked up in October, particularly across North America and the UK, leading to increased discounting in the sector to help keep tills ringing.

“JD’s been reluctant to offer the same level of promotion as the competition, which has helped to protect its margins. But it’s also meant sales growth has slowed over the third quarter and full-year profits are now expected to come in at the lower end of previously downgraded guidance.

“Looking past this softness, JD’s thinking ahead and continuing to expand its footprint through acquisitions and new store openings. The French company Courir is next on the shopping list for JD, and it’s making good progress in completing the acquisition after meeting all regulatory conditions. The deal’s expected to close shortly, expanding the group’s footprint on the continent.

“The ‘King of Trainers’ is taking a risk by expanding capacity ahead of market recovery. It’s not likely to become a jewel in the crown any time soon, but it could pay dividends down the line when market conditions and consumer confidence improve.”