By Cristina Gallardo
JD Sports shares hit a near four-year low after the British company cut its full-year profit guidance blaming challenging market conditions.
Shares in the British sportswear fashion retailer were down 7.39% at midday on Tuesday to 89.18 pence, having plunged around 11% early-morning trading. The stock has fallen 22% over the last 12 months.
The London-listed group said its organic revenue growth reached 3.4% in the nine weeks to Jan. 4, but stood flat year-to-date.
Strong Christmas sales boosted its like-for-like revenue growth in December, but this wasn't enough to offset November's weakness. The metric stood at 1.5% across November and December, the company said.
"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," Chief Executive Regis Schultz said.
The group now expects adjusted pre-tax profit--the company's preferred metric, which strips out exceptional and other one-off items--of between 915 million pounds and 935 million pounds ($1.12 billion-$1.14 billion) for its fiscal year ending in February. It had previously guided for the lower end of a range of 955 million pounds to 1.035 billion pounds.
Like-for-like revenue should remain at a similar level as the previous year, with full-year organic revenue growth forecast at around 5%.
This is the second time that the JD Sports, which sells sneakers and sports fashion items from brands such as Nike and Adidas, cut its profit guidance in recent times, having also lowered expectations in November.
The update triggered mixed reactions from analysts.
Some wondered whether investors may soon lose patience with Schultz, as the share price has fallen by a third since he took up the CEO role in 2022.
"His nine lives are nearly up as the business has spluttered under his leadership and the goal of achieving 1 billion pounds profit has been kicked further down the road," said Russ Mould, investment director at AJ Bell.
Mould warned that JD Sports could become a prime takeover target if the share price continues to weaken. It is now close to the lows seen in April 2020 amid the global market selloff during the Covid-19 pandemic, when it reached 82.58 pence.
Richard Hunter, head of markets at interactive investor, said JD Sports' strategy not to engage in promotions during the last part of the year and protect its gross margins appears to have backfired. "It remains to be seen whether the market consensus of the shares as a buy remains intact following this latest disappointment," he said.
The company's woes are related to key supplier Nike, even if the U.K. sportswear retailer hasn't called out any brand in particular, said Mamta Valechha, consumer discretionary analyst at Quilter Cheviot. The supply of new franchises will be further constrained over the next few seasons, and this is likely to hinder top-line momentum for JD Sports too, Valechha warned.
JD Sports faces about 30 million pounds in additional costs from the recent U.K. budget in fiscal 2026, according to Panmure analysts Anubhav Malhotra and Wayne Brown, who cautioned that they see limited scope for like-for-like profit growth by the British sportswear fashion retailer as a result. The U.K. budget, announced in October, set out 40 billion pounds worth of tax increases for businesses.
Other analysts, however, struck a more optimistic tone.
Shore Capital analysts David Hughes and Clive Black said JD Sports' balance sheet remains strong, and that the company continues to generate cash and expects to end the year with only a small pre-IFRS 16 net debt despite significant acquisitions made this year.
RBC Capital Markets said it has the opportunity to appeal to more types of customers in the U.S. and other regions, and to improve the efficiency of its warehouses.
Write to Cristina Gallardo at cristina.gallardo@wsj.com
(END) Dow Jones Newswires
January 14, 2025 07:11 ET (12:11 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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