JD Sports Fashion has recently encountered a challenging day in the markets, experiencing a nearly 10% drop on Tuesday midmorning after announcing a significant revision to its profit forecasts for fiscal 2025. This adjustment comes in light of unexpectedly strong market headwinds, compelling the sports fashion retailer to reassess its financial outlook.
In a pre-close trading update that covered the nine weeks ending January 4, 2025, JD Sports reported a 1.5% year-over-year decline in like-for-like revenue, indicating a tough retail environment. Nonetheless, organic revenue has shown a commendable increase of 3.4%, primarily driven by a robust performance in December 2024, particularly during the Christmas season.
However, when looking at the year-to-date figures, revenue remained largely stagnant. Analyzing sales by category, the company noticed a notable uplift in footwear sales, with in-store transactions surpassing those made online. Geographically, strong revenue increases in Europe and Asia Pacific helped to compensate for weaker sales in the UK and North America.
Chief Executive Officer Régis Schultz shared insights on the company's strategic decisions: "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." Upon revising its pretax profit guidance, JD Sports now anticipates profits to fall between £915 million and £935 million for fiscal 2025.
This marks a decline from the previously forecasted range of £955 million to £1.04 billion at the lower end. The company also expects like-for-like revenue trends to align closely with the previous year, estimating a full-year organic revenue growth of approximately 5%. The updated profit outlook has elicited a variety of responses from financial analysts.
Bernstein expressed worries regarding the profit downgrade, indicating that this move "does not help build management's credibility." Conversely, RBC Capital Markets presented a more favorable viewpoint, emphasizing JD Sports' recognition as a "preferred partner" for significant sportswear brands and its promising growth potential.
RBC analysts suggested, "We think improvements have come through in governance, which should reassure investors; however, execution risk remains higher than average due to the company's rapid expansion, particularly as it generates around 50% of its sales from the Nike brand.".