- Retailer posts record first-half results
- Organic growth across key regions
- Nike woes and FX headwinds hit stock
Despite dashing in with record first-half results which demonstrated demand for tracksuits and trainers remains robust, shares in JD Sports Fashion (JD.) cheapened 5.4% to 141.5p as investors fretted over poor news from its biggest brand partner Nike (NKE:NYSE) overnight.
Currency headwinds from a stronger pound, expected to drag consensus estimates lower, also weighed on the stock.
While Nike’s first-quarter earnings beat expectations, revenue of $11.59 billion was shy of the $11.65 billion Wall Street anticipated and the sneakers-to-soccer balls giant withdrew its full-year guidance with new chief executive Elliott Hill about to take the helm.
Mixed results from Nike, which has surrendered market share to rivals like On, Hoka and New Balance and suffered an 11% drop in North America sales to $4.83 billion in Q1, were read as negative for JD Sports, which has materially upped its exposure to the athleisure market across the pond.
RECORD FIRST-HALF RESULTS
JD Sports’ results for the half to 3 August 2024 revealed better-than-feared adjusted pre-tax profit of £405.6 million, up 2% year-on-year but flat when stripping out the contribution from the recently acquired Hibbett business in the US.
Group revenue rose 5.2% to £5 billion at the self-styled ‘King of Trainers’, a decent performance given a slowdown in like-for-like sales growth to 0.7% as the retailer outperformed a ‘volatile global marketplace’, although elevated promotions drove a year-on-year decline in gross margin from 48.4% to 48.2%.
JD Sports delivered double-digit organic growth across Europe, Asia Pacific and also North America, its biggest region, where the acquisition of US sports retailer Hibbett has added ‘material scale and presence’.
While JD Sports maintained its guidance for full-year adjusted pre-tax profit in the £955 million to £1.035 billion range, the retailer now expects a bigger currency headwind with sterling strengthening against the US dollar and the euro, which suggests consensus estimates need to come down.
WHAT DID THE CEO SAY?
JD Sports’ chief executive Regis Schultz said: ‘Our acquisition of Hibbett, which completed just before the period end, is a key milestone in our international development and advances the global nature of the group through our strengthened position in the US. I remain confident in the delivery of our exciting growth plans for North America and that the group is well positioned to continue growing share in the world’s largest sportswear market.’
Dan Coatsworth, investment analyst at AJ Bell, explained Nike’s strategy to sell more products direct to the consumer hadn’t lived up to expectations and said it would be ‘interesting to see if there is a radical change in strategy once the new CEO has reviewed the business.’
As for JD Sports, Coatsworth observed the retailer is seeing stronger trading in footwear than apparel, although growth is being achieved in both areas.
‘Poor weather has hampered clothing sales, yet JD says demand was strong for casual footwear, which makes Nike’s struggles even more worrying,’ added Coatsworth.
‘The beauty of JD’s model is it isn’t reliant on a single brand to do well. Instead, it stocks a range of brands, from On and Adidas to Hoka and Converse, which gives it flexibility to capitalise on the most in-demand products. That puts a greater emphasis on Nike to improve relationships with JD and ensure its shoes still have pride of place on the shelf. It won’t be an easy conversation given Nike’s efforts to bypass JD and other retailers with direct-to-consumer sales – a strategy which could come to haunt it.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
