- Forecast-beating figures from Nike
- Easing headwind for JD Sports
- Return to US like-for-like growth a key catalyst
JD Sports Fashion (JD.) was the biggest gainer in the FTSE 100 on Friday morning, shares in the self-styled ‘King of Trainers’ jumping 7.6% to 88p on a positive read-across from Nike’s (NKE:NYSE) results overnight.
Nike, whose products represent a significant share of JD Sports’ sales, dashed in with (26 June) better-than-expected fourth quarter results that suggested the footwear manufacturer’s turnaround initiatives are gaining traction.
A healthier Nike playing catch-up with product innovation could stimulate new demand for its products and theoretically JD Sports would benefit, being a key retailer of Nike shoes.
‘While Nike clearly still have work to do, it appears the business is past the worst and so we do see the potential for the removal of what has been a significant headwind for JD,’ said Shore Capital, which has a ‘buy’ rating on the retailer’s stock.
NIKE’S IMPROVING TREND
Wall Street expectations were subdued heading into the print, yet Nike still delivered forecast-beating revenue of $11.1 billion for the quarter ended 31 May 2025.
That was down 12% year-on-year but ahead of the $10.7 billion consensus estimate, while earnings of 14 cents per share topped the 13 cents analysts were looking for.
Nike CEO Elliott Hill, a company lifer who came out of retirement less than a year ago to lead the turnaround, always said the company’s recovery would be a marathon not a sprint.
The market’s positive reaction to what represented its worst results in more than three years suggests that message has got through.
Nike has been working to clear out stale inventory, sort out its digital business and rebuild its relationships with wholesale partners after a previous strategy of focusing heavily on direct-to-consumer sales failed to pay off.
Another challenge is competition from new brands, particularly in running where Hoka and On have emerged triumphant. Nike is looking to refocus its attention on sport and innovation to help fight off this threat.
UPHILL RUNNING
The magnitude of the turnaround task facing Nike was demonstrated by the fact its operating margin was a meagre 2.9% and sales declined in all regions during the quarter, with China sales of $1.48 billion coming in shy of the $1.50 billion analysts expected.
Nevertheless, revenues of $4.7 billion from North America, Nike’s biggest market, proved better-than-feared and the sportswear giant expects an improving trend in the first quarter to just a mid-single digit revenue decline, with the company seeing better momentum in Europe and the US.
KEY CATALYST
‘Overall, the double-digit sales decline for Nike has undoubtedly been a significant headwind for JD and there is still more work to do before the company sees a return to revenue growth and in continuing to clean the inventory position,’ explained Shore Capital.
‘However, with this update we do see early signs of an improving wholesale channel. Such an improvement in wholesale (particularly in the US) is key for JD to see a return to American growth.’
With JD Sports currently trading on depressed valuations, Shore Capital believes ‘a return to like-for-like growth in the US would be a key catalyst for a re-rating of the stock.’
