JD Sports exits the race with profits of £1 billion after another downgrade
- Next seems to be the first to achieve a milestone now that JD Sports is relegated
JD Sports has cut annual profit forecasts for the second time in less than two months after facing tougher-than-expected market conditions during the crucial Christmas period.
The Bury-based group, which earned £917.2m last year, had hoped to follow fellow retailers Tesco, M&S and Kingfisher in achieving £1bn in pre-tax profits, but will now be beaten to the milestone by Next .
Boss Régis Schultz told investors on Tuesday that “market headwinds were higher” than forecast in the nine weeks to January 4.
JD Sports’ decision to avoid discounts also put the group at a disadvantage in “a more promotional environment in the period than we anticipated,” he said.
Like-for-like revenues fell 1.5 percent in November and December as growth in Europe and Asia-Pacific only partially offset weaker traders in Britain and North America.
Recently published industry data points to a disappointing ‘golden quarter’ for retailers in general, with non-food sales performing particularly poorly.
JD Sports has lowered its profit forecasts for the second time in less than two months
JD Sports said it had had a “strong Christmas and December”, with like-for-like sales up 1.5 percent thanks to strong demand for its footwear, sporting goods and outdoor segments.
It also highlighted the market-strengthening performance of the newly acquired North American Hibbett and Courir businesses.
The company has embraced a strategy of inorganic expansion, buying brands and expanding into new markets.
Analysts say that while this approach is risky at a time of weaker consumer confidence, JD Sports should be well positioned when the economy improves.
JD Sports also noted that gross margins were up 48 percent from last year.
Nevertheless, the group said it expects to report full-year profit before tax and adjustments of £915 million to £935 million, down from revised November guidance of £955 million to just over £1 billion.
CEO Schultz said: ‘While I am pleased with our performance overall, the market headwinds were greater than we expected and therefore our full year earnings guidance is slightly below our previous expectations.
‘Now that these market conditions are expected to continue, we are looking cautiously at the new financial year.’
JD Sports Fashion Stocks fell 9.9 percent at the open to 86.82p at the open, after losing almost 25 percent in the last twelve months.
Analysts at Peel Hunt reiterated their ‘buy’ recommendation on JD Sports, but cut the group’s price target from 250p to 200p.
They said: ‘The cuts are not a pretty sight, but we continue to believe that management is taking the right approach by not getting involved in the race to the bottom by making cuts.
“While it is not impossible that the speed of the rollout slows marginally until Nike gets back to business, JD is ultimately building itself into a strong market leader in a very attractive global market, in our view.
“We believe this is still by some distance the best brand in sports fashion retail, and supplier relationships remain very strong. Tough trading periods like this come and go, and the strong tend to get stronger.
“That’s what we anticipate here, and while the shares won’t benefit from the cuts, we think they will almost certainly provide a good entry point.”
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