JD Sports shares tumbled by 22% on Thursday as the UK-based retailer revised its guidance, indicating a downturn in the global sportswear market following Nike's warning of reduced consumer spending last month.
JD Sports Fashion adjusted its profit guidance, citing weaker-than-expected sales during the peak 22-week trading period ending December 30. The Manchester-based retailer attributed the softer sales to mild September weather and "cautious consumer spending", leading to a cut in pre-tax profit guidance for the full year ending February 3 from £1.04 billion ($1.3 billion) to between £915 million and £935 million.
The FTSE 100 company mentioned higher spending on promotional activities due to a slowdown in consumer spending would see it record lower profit margins compared to the previous year.
JD Sports reported slower-than-expected growth in the 22-week peak trading period, achieving constant currency revenues growth of 6% and like-for-like growth of 1.8%.
German apparel sellers Puma and Adidas both saw their shares decline by 3% following JD Sports' announcement.
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The update follows Nike's decision in December to revise its guidance due to an anticipated drop in consumer spending in Europe, the Middle East, Africa, and Greater China.
Nike outlined plans to achieve $2 billion in cost savings over the next three years, expecting only a 1% growth in revenues compared to earlier forecasts of mid-single digit growth.
JD Sports CEO Régis Schultz, who had previously outlined plans to invest £3 billion in opening 1,750 new stores worldwide, said the company had made progress by opening 200 new stores this year:
“Our key markets have seen increased promotional activity during the peak trading season, driven by a more cautious consumer, but we continue to grow market share. We are confident in our strategy and we continue to invest in our supply chain, systems and stores, supported by our strong cash generation and healthy balance sheet”.
Other UK clothing retailers’ fortunes were not as bad, as Next raised its profit guidance, leading to a 5% increase in the company’s shares.
Markets.com Chief Market Analyst Neil WIlson weighed in on the contrasting performance between the two retailers, saying that Leicester-based Next had got it “just right” with a number of “really smart acquisitions in recent years”:
“Next rallied to the top of the FTSE 100 after raising its profit outlook, whilst JD Sports slumped by a quarter after it joined Nike in warning on slower demand for sporting goods. Next posted yet further signs of an upswing in UK consumer spending in December that suggests Q4 GDP growth might show recovery from the slow start in October. Full price sales rose 5.6% in the nine weeks to the end of December...online was the star but behind the scenes is an incredibly dynamic shop-window store offering that works well with the online delivery channel. There have also been some really smart acquisitions in recent years – FatFace, Cath Kidston, JoJo Maman etc. Next has just got it right. Not too richly priced at 14x PE TTM.
JD Sports was a whole other story and seems to be part of a global problem. Like-for-like sales +1.8% in the 22 weeks the end of December was sluggish and below expectations. Pre-tax profit estimate lowered to between £915m and £935m, a tenth below previous guidance of £1.04bn. Apparently way too much stock and a lot of aggressive discounting in the sector”.
In European stock markets, the German DAX index was up 0.22%, the French CAC 40 increased by 0.4%, and the FTSE 100 also rose by 0.4% as of 15:30 GMT.
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