Shares of Bury-based FTSE 100 retailer JD Sports Fashion plc fell as much as 11% on Tuesday after it lowered its profit guidance for the full year amid a “challenging and volatile market.”
JD Sports said it now expects pretax profit and adjusting items of between £915 million and £935 million, down from a previous range of between £955 million and £1.035 billion.
The news came in a pre-close trading update covering the nine weeks to January 4, 2025.
“Like-for-like (LFL) revenue across November and December was (1.5)%, in a challenging and volatile market that saw increased promotional activity,” said JD Sports.
“We delivered a strong Christmas with December LFL revenue up 1.5%. Footwear sales grew and outperformed apparel, and our stores outperformed our online channel.
“We saw a strong LFL revenue performance through the period from our Sporting Goods and Outdoor segment, and LFL revenue growth in Europe and Asia Pacific partially offset weaker LFL trading across the UK and North America.
“In terms of our recent acquisitions, Hibbett traded slightly ahead of the wider North America business and Courir traded well across the weeks following acquisition.
“Year-to-date, LFL revenue is flat and we expect full year LFL revenue to be at a similar level to this. Organic revenue growth in the period was 3.4% and we expect full year organic revenue growth to be around 5%.
“Gross margins remain robust on the back of our continued price and promotional discipline, across both stores and online. Gross margins in the period are ahead of last year with the full year gross margin expected to be around 48%, in line with last year.
“Taking the above into account, we now expect the full year profit before tax and adjusting items to be between £915m and £935m. We have managed our inventory position well through the period and, due to our strong cash management during the year, we expect to end the year with a small net debt position on a pre-IFRS 16 basis.
“We will provide a post-close update in March, covering both a Q4 trading update and guidance for FY26.”
JD Sports Fashion CEO Régis Schultz said: “Considering the current headwinds in the market, we performed well, delivering organic revenue growth of 3.4% across the period, and a strong Christmas resulted in LFL revenue growth in December …
“In line with our proven long-term approach, we chose not to participate in what was a more promotional environment in the period than we anticipated, fully maintaining our trading discipline to deliver gross margins ahead of last year, clean inventory and strong cash management.
“While I am pleased overall with our performance, market headwinds were higher than we anticipated and therefore our full year profit forecast is slightly below our previous guidance. With these trading conditions expected to continue, we are taking a cautious view of the new financial year.”
REACTION:
Richard Hunter, Head of Markets at Interactive Investor: “JD Sports chose not to engage in promotional activity in the latest period, choosing instead to protect its cash management and gross margin positions, and this strategy appears to have backfired somewhat.
“While revenues grew by 3.4% in the quarter, including an improvement of 1.5% in like-for-like revenues over Christmas, the undesirable outcome is that the group has downgraded its full-year pre-tax profit forecast. From a previous range of between £955 million and £1.035 billion, the revised guidance of between £915 million and £935 million is rather more than the group’s description of the amendment as being ‘slightly’ below forecast.
“The remainder of the picture is mixed, with strength in Europe and Asia not sufficient to offset weakness in the UK and North America. For the full-year, revenue is expected to grow by around 5% and the gross margin to remain at its 48% level.
“Further out, the most promising and obvious opportunity 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 as evidenced in this update.
“The downgrade has been met by investors who are currently in a ruthless mood. The double-digit decline in early trade is in addition to a price which has suffered of late, with the shares already having fallen by 16% over the last year prior to this update, a move which compares to a gain of 7.9% for the wider FTSE100.
“JD Sports is now taking the tough medicine being handed out by the market and it remains to be seen whether the market consensus of the shares as a buy remains intact following this latest disappointment.”