JD Sports says cost-of-living squeeze hitting sales despite football kit boost

As JD Sports announces that it is downgrading its profit outlook in a “tough” market, due to cost-of-living pressures on customers, Aarin Chiekrie, equity analyst at Hargreaves Lansdown, believes that the group’s focus of improving efficiencies rather than expanding is the right approach.

He said: “JD Sports took another small step backwards in the second quarter, with full-year profit guidance lowered amid a tough market backdrop. Softening sales in its largest market, North America, was the main driver as consumer sentiment remains weak and back-to-school demand was deferred into August, after period-end. The football World Cup was a tale of two halves for JD. Despite the tournament being hosted across much of North America, it wasn’t enough to convince these fans to lace up in new gear from JD’s stores. Football fever was running hotter in the UK and Europe, though, with strong replica kit sales helping to drive an improved sales performance in the regions.

“The net impact was that group organic sales growth fell 1.3 per cent in the second quarter. Alongside elevated levels of promotional activity, which is likely to continue through the second half and weigh on margins, full-year underlying pre-tax profit guidance has been lowered by six per cent at the midpoint to £700-800 million. After a series of acquisitions in recent years, the group’s focus is shifting from expansion to improving efficiencies and squeezing the most out of its existing store footprint. We think this is the right approach given the subdued growth outlook for the sports apparel industry, and it’s helping to improve cash generation and shareholder returns. Despite its strong market position, it could be a while yet before the industry backdrop improves.”