- Full year profit guidance maintained
- But sales growth slowed in May
- Retailer seeing ‘some softening’ in North America trade
Shares in JD Sports Fashion (JD.) cheapened 5% to 139p after the Regis Schultz-led sports fashion retailer reported a sales growth slowdown for the month of May and flagged softer trading in its North America businesses.
But the FTSE 100’s own ‘King of Trainers’ also stressed that positive trends have continued through June in its UK, Europe and Asia Pacific businesses and reiterated guidance for pre-tax profits in line with the £1.04 billion consensus estimate for the year to January 2024.
GROWTH PACE SLOWS
In an AGM (annual general meeting) update, the trainers-to-athleisure seller reported further positive trading in all regions in May with organic sales growth of around 8%.
Unfortunately, that marked a slowdown from the impressive 15%-plus growth seen in the first three months of the new financial year.
JD Sports pinned this growth moderation on tougher comparatives in the prior year period as the supply chain normalised and product availability improved.
BUT POSITIVE TRENDS PERSIST
While the pace of growth has slowed, JD Sports assured investors that positive trends have continued through June in its businesses in the UK, Europe and Asia Pacific.
Growth from these regions has been ‘partially offset’ by North America, where its businesses are ‘experiencing some softening in trade consistent with other businesses in the sector’.
JD Sports was at pains to point out that inventories in its businesses across the pond are at normal levels and it will be ‘no more promotional than we need to be to remain competitive’.
WHAT ARE THE EXPERTS SAYING?
Shore Capital explained that weaker trading updates and consequent downgrades in the sports sector have weighed on JD Sports’ share price since its CMD (capital markets day) in February.
While the broker is ‘conscious of the macro backdrop challenges’, it points to a ‘strong structural position’ and robust balance sheet which allows it to ‘out-invest its peers, particularly in the US market.
‘Furthermore, JD’s recent acquisition of Courir provides the critical mass needed to compete effectively in the European market,’ said Shore Capital.
The takeover of Courir expands JD Sports’ presence in the European sports footwear and apparel sector and marked the retailer’s first acquisition since new chief executive Schultz set out bold expansion plans at the CMD earlier this year.
AJ Bell investment director Russ Mould commented: ‘Terms like “softening in trade” and “moderation in growth” in JD Sports’ latest update go to show that even the most successful retail businesses can go through bad patches.
‘We continue to see many trainers from the likes of Nike sell out as soon as they go on sale, creating a buzz about the products which makes consumers want them even more. Many people see trainers as collectibles and they are happy to pay high prices in the belief they could be worth even more in the future.
‘Yet if the recession clouds darken over the economy, particularly in North America, then there is a risk that the demand dynamic could change because of affordability factors.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Tom Sieber) own shares in AJ Bell.
