JD Sports Fashion plc (JD.) ORD GBP0.0005

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JD Sports reported first-half revenue of £5.9bn, up 20.0% ignoring exchange rates, with growth fuelled entirely by acquisitions. On a like-for-like (LFL) basis, revenue fell by 2.5%, with all regions in negative territory.

Underlying pre-tax profits fell by 11.8% to £351mn (£368mn expected). The decline reflects lower LFL revenue, lower margins due to discounting, and increased borrowing costs related to recent acquisitions.

Free cash outflows improved from £103mn to £68mn, helped by improved cash generation and lower capital expenditures. Net debt, including lease liabilities, rose from £3.0bn to £3.2bn since year-end.

Full-year underlying pre-tax profit guidance has been held broadly flat at £878mn, in line with market expectations, pointing to a much-improved second half performance.

The interim dividend was held flat at 0.33p per share. A previously announced £100mn share buyback programme is set to begin shortly.

The shares were broadly flat in early trading.

Our view

JD Sports' first-half performance was largely as expected, with recent acquisitions flattering performance and helping total sales rise 20%. Stripping out the impact of these acquisitions, like-for-like sales declined by 2.5%, which isn’t insignificant when margins are already fairly thin.

Trading across Europe and the UK remains weak, especially in the latter. Year-on-year numbers have faced a tough comparative period, which got a foot up from the men's 2024 Euros. We remain cautious about the outlook for the UK, with recent changes to employer taxes and minimum wages bringing a handful of extra costs and challenges.

The US has been a major pain point in recent times due to a combination of a tough macroenvironment, product launch delays and heavy discounting by peers. JD’s been holding firmer on pricing than competitors, who have leaned into more promotional activity to help clear stock. While like-for-like sales are still in negative territory, there are early signs that trends across the pond are improving.

Acquisitions in the US and France have massively expanded the group’s footprint. The focus is now on converting them to the JD brand and leveraging the cost efficiencies this increased scale can bring is a key part of the plan. While early progress on this front looks promising, there’s still a long road ahead.

The Hibbett acquisition means that the US is now JD Sports’ largest region by sales (H1: 39%). Despite this, the direct impact of tariffs on its operations isn’t expected to be material. We’re keeping a close eye on the indirect impact of tariffs, which could ultimately weigh on consumers’ spending power. Given that JD sells discretionary items, if the economic outlook deteriorates, JD is likely to suffer more than some other areas of retail.

Group expectations for underlying pre-tax profits of around £878mn this year point to a decline of around 5%. And after a slow start to the year, there’s a lot of work to be done in the second half if this target’s to be met, and we wouldn’t be surprised to see the group falling just short.

Looking past the near-term uncertainty, we’re pleased with the change of focus from expansion to squeezing the most out of its store footprint. That should strengthen the balance sheet and increase shareholder payouts, although there are no guarantees.

The challenges look priced into the current valuation, which sits well below the long-run average, offering both upside potential and some downside protection. We think this could be an attractive entry point for potential long-term investors. However, there are plenty of challenges in the near term, including tariff uncertainty and weak consumer sentiment, so be prepared for a bumpy ride.

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 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.

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 Refinitiv. 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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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