JD Sports slumps on warning profit will be at lower end of range

Third quarter like-for-like sales fell by 0.3%, while organic group revenue was up 5.4%, the company said in a trading update on Thursday. JD Sports forecast annual profit before tax and adjusting items in a range of £955m - £1.035bn.

Regionally, like-for-like sales fell 2.4% in the UK, 1.5% in the Americas and 3.8% in Asia Pacific. Europe bucked the trend with a 3.5% increase in the 13 weeks to November 2.

Same-store sales were 0.3% lower across the group in the quarter.

“We had a strong back-to-school period but we saw much softer consumer demand and trading toward the end of the period, reflecting elevated promotional activity, unseasonable weather and a cautious consumer, with evidence supporting suppressed demand in the US ahead of the election,” said chief executive Regis Schultz.

“Against this backdrop, we maintained our operating discipline to deliver on our long-term commercial strategy rather than a short-term sales focus.”

As a result, Schultz said, gross margin increased 0.3 percentage points to 48.1% with the year-to-date figure now at 48.2%, in line with the corresponding period.

Store sales continued to outperform online trading, while footwear also fared better than clothing. JD Sports opened 79 new shops in the third quarter, with 181 in its financial year so far, taking the global total to 4,541 - this includes about 1,180 added from the £900m acquisition of US retailer Hibbett.

Aarin Chiekrie, equity analyst, Hargreaves Lansdown said the ‘King of Trainers’ is having to "lace up and work hard to drive sales higher".

"JD’s been reluctant to offer the same level of promotion as the competition, which has helped to protect its margins. But it’s also meant sales growth has slowed over the third quarter."

"Looking past this softness, JD’s thinking ahead and continuing to expand its footprint through acquisitions and new store openings. The French company Courir is next on the shopping list for JD, and it’s making good progress in completing the acquisition after meeting all regulatory conditions."

Chiekrie added that the company could be taking a risk by expanding capacity ahead of market recovery but the move "could pay dividends down the line when market conditions and consumer confidence improve".

Reporting by Frank Prenesti for Sharecast.com