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

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JD Sports’ like-for-like sales fell by 1.8% in the nine weeks to 3 January, which was slightly better than market forecasts. Sales growth in North America and Asia Pacific was more than offset by declines in the UK and Europe.

Full-year underlying pre-tax profits are expected to land at around £849mn (2025: £923mn). Free cash flows are expected to be around £400mn.

In 2027, the group expects a period of “muted market growth”, partly due to a weak spending outlook for its core customers. However, the group expects to generate “significant free cash flow” helped by disciplined financial management.

The shares rose 2.3% in early trading.

Our view

Despite a small like-for-like decline, JD Sports' sales fared better than markets were expecting over the festive season. That helped to keep recently lowered full-year guidance on track, which pleased markets on the day.

Trading across Europe and the UK remains weak though, especially in the latter. We remain cautious about the outlook for the UK, with changes to employer taxes and minimum wages bringing a handful of extra costs and challenges.

The picture in North America is turning more positive, with like-for-like sales swinging from a decline in the prior quarter to growth. New product launches and marketing initiatives are having the desired effect, helping the group scoop up market share. Overall, the US economy remains in relatively good shape as consumers continue to spend.

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.

Looking to the year ahead, the group struck a cautious tone. A weak spending outlook for its core demographic of customers, paired with a lack of innovation in the pipeline from its suppliers, means market growth is expected to be underwhelming. While that’s disappointing, we still think that the longer-term opportunity looks favourable given its strong market position and impressive cash generation.

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. We think this is the right approach, and it should strengthen the balance sheet and lead to increased 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, the market is likely to remain subdued in the near term, and fashion retail is a very competitive space. Plenty of patience is required.

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 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.

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.

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