First-half revenue fell 0.7% to £5.9bn (as expected) before currency moves, acquisitions and disposals. The decline was put down to weak demand and heavy discounting. Sales fell in every region except Asia, its smallest market.
Underlying pre-tax profits fell by 19% to £0.3bn, driven by a lower markup and higher operating costs.
Free cash outflow improved from £68mn to £18mn, helped by lower capital expenditures. Net debt, including lease liabilities, was down £0.2bn to £2.9bn.
JD Sports still expects underlying pre-tax profit of £700-800mn and free cash flow of £460-520mn this year.
The group has started the final tranche of the £200mn buyback and increased the interim dividend 21% to 0.40p per share.
The shares were broadly flat in early trading.
Our view
JD Sports’s first-half performance was broadly in line with expectations, with a tougher consumer backdrop and promotional retail environment weighing on sales and margins. Management maintained recently downgraded guidance despite warning that conditions are likely to remain challenging in the second half. We think the outlook is achievable but delivery now depends on sharper execution through the key holiday trading period.
JD is a sports apparel giant, with more than 4,800 stores across 51 different countries. Acquisitions in the US and France in recent years, alongside the newly announced Mexico franchising deal, have massively expanded the group’s footprint.
eCommerce is another lever management is pulling, and at just 20% of sales, there is plenty to go for. Technology investment should support that transition over time, and while success isn’t guaranteed recent progress has been promising.
In the near term, pressure on consumers and limited product innovation mean it could take a while before industry conditions improve. The sportswear industry is grappling with limited product innovation, weighing on demand and growth. Until product pipelines improve, headwinds are likely to persist. Alongside this, JD’s younger customer base remains more exposed to cost-of-living pressures and weaker employment conditions.
North America is JD Sports’ largest region, accounting for 38% of total sales. Performance has been under pressure recently, driven by tough competition and a lack of new product launches, especially in footwear.
The UK’s more mature store estate has also seen performance suffer against a weak consumer backdrop. The group is transitioning to fewer but bigger and better stores to improve its offering to customers. Although we support the strategy, we remain cautious about the broader outlook for the UK economy.
Even so, management has stuck to full-year adjusted profit guidance of £700-800mn and free cash flows of £460-520mn. While much depends on the crucial holiday trading period, management is banking on cost efficiencies and a stronger online, in-store and non-footwear offer to offset the tougher backdrop.
A sharper focus on inventory management, including the use of AI tools, should help support cash flows and, with them, shareholder returns, though these are never guaranteed.
JD remains one of the strongest operators in sportswear retail. The valuation now reflects a more subdued growth outlook, while continued share buybacks and a growing dividend provide some support for shareholders. We still see long-term potential as focus shifts from expansion to improving returns from its existing stores, but the challenging backdrop could present further obstacles along the way.
Environmental, social and governance (ESG) risk
The retail industry is low/medium in terms of ESG risk but varies by subsector. Online retailers are the most exposed, as are companies based in the Asia-Pacific region. The growing demand for transparency and accountability means that human rights and environmental risks within supply chains have become a key risk driver. The quality and safety of products as well as their impact on society and the environment are also important considerations.
According to Sustainalytics, JD Sports’ management of ESG risk is strong.
The group’s environmental policy is strong, and executive remuneration is explicitly linked to sustainability performance targets. There is also an adequate whistleblower policy in place. However, ESG reporting and disclosures fall short of best practice.
JD Sports key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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