- Next looks set to become first to profit milestone as JD Sports downgrades
JD Sports has cut annual profit guidance for the second time in less than two months after facing tougher market conditions than expected over the crucial Christmas trading period.
The Bury-based group, which made £917.2million in the previous year, had hoped to follow fellow retailers Tesco, M&S and Kingfisher in achieving £1billion in pre-tax profits, but is now set to be beaten to the milestone by Next.
Boss Régis Schultz told investors on Tuesday that ‘market headwinds were higher’ than predicted over the nine weeks to 4 January.
JD Sports’ decision to shun discounting also put the group at a disadvantage in ‘a more promotional environment in the period than we anticipated’, he said.
Like-for-like revenues across November and December fell 1.5 per cent as growth in Europe and Asia Pacific only partially offset weaker trader in the UK and North America.
Recently published industry data suggests a disappointing ‘golden quarter’ for retailers more generally, with non-food sales faring particularly poorly.
JD Sports has cut profit guidance for the second time in less than two months
JD Sports said it had delivered a ‘strong Christmas and December’, with like-for-like sales up 1.5 per cent thanks to strong demand for its footwear, sporting goods and outdoor segments.
It also highlighted market-beating performance of its newly acquired North America businesses Hibbett and Courir.
The firm has embraced a strategy of inorganic expansion, buying up brands and expanding into new markets.
Analysts say that while this approach is risky at a time of weaker consumer sentiment, JD Sports should be well positioned when the economy improves.
JD Sports also noted gross margins were ahead of last year at 48 per cent.
Nevertheless, the group said it expects to report full year profit before tax and adjusting items of £915million to £935million, down from revised November guidance of £955million to just over £1billion.
Chief executive Schultz said: ‘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.’
JD Sports Fashion shares fell 9.9 per cent at the open to 86.82p at the open, having lost almost 25 per cent over the last 12 months.
Analysts at Peel Hunt reiterated their JD Sports ‘buy’ recommendation but cut the group’s target share price from 250p to 200p.
They said: ‘The downgrades are not a pretty sight, but we continue to believe that management is adopting the right approach by not getting involved in the race to the bottom by discounting.
‘While it is not impossible that the speed of rollout slows marginally until Nike is firing again, ultimately JD is building itself into a strong market leader in a highly attractive global market, in our view.
‘We believe this is still the best brand in sports fashion retail by some distance, and the relationships with suppliers remain very strong. Difficult trading periods like this come and go, and the strong tend to get stronger.
‘That’s what we foresee here, and while the shares won’t enjoy the downgrades, we believe they will almost certainly present a good entry point.’
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