JD Sports shares sank on Friday after the company signalled it was facing ‘challenging market’ conditions. Sales dropped last year, and the weakness has continued into the current year.
Readers of the company’s 2024 full-year results were met with the headline ‘Strategic Progress in a Challenging Market’ presented in big bold type at the top of the release.
Investors have focused on the latter half of this statement and dumped shares in early trade on Friday.
“Results came in later than expected and pointed to continued volatility in the market. Underlying profits landed within their previously downgraded guided range, marking an 8% fall from last year,” said Guy Lawson-Johns, equity analyst, Hargreaves Lansdown.
Falling profit will be a real disappointment for investors but this was already largely priced. The assertion the company is operating in a challenging market will do nothing to increase confidence it can bounce back in the year ahead. This did the real damage on Friday.
Indeed, sales fell again in the first quarter, highlighting ongoing softness in demand for premium sportswear. JD Sports did confirm guidance for the year but this has been met with a healthy dose of scepticism given the poor trading results so far this year.
“It also reiterated its guidance for profit to be in the £955-£1,035mn range this year, despite a 6.4% drop in sales in its home market in the first quarter,” Lawson-Johns said.
“Achieving that will be a tall order if challenging markets prevail, but through the store rollout program, the company is taking proactive steps to shape its future.”
“Since joining in 2022, CEO Régis Schultz hasn’t shied away from ambitious expansion plans in North America and Europe. With 200 new stores opened last year and another 200 planned this year, Schultz is clearly focused on growth. Fuelled by £0.5bn of additional capital spend, expansion isn’t coming cheap, but new stores exceeding internal sales expectations by 20% show early signs that the investment is working.
“With growth seemingly not coming quickly enough, the latest billion-dollar Hibbett deal will see the British footwear retailer accelerate its North American growth plans. Adding over 1,000 stores in a key growth market is an attractive proposition, and while the focus on acquisitions may leave little room to increase the dividend, gearing up for future growth could be the best use of capital.”
JD Sports were down 8% at the time of writing.
