JD Sports Faces Profit Hit Following October Trading Woes
JD Sports Fashion, a leading retailer in sportswear, issued a warning about a potential impact on its profits after experiencing a sales decline in October. The company’s shares plummeted by up to 17% during morning trading on Thursday. It stated that the underlying annual profits are now projected to be at the lower end of the previously estimated range, which was between £955 million to £1.04 billion.
The drop in profits was attributed to challenging trading conditions in October, with the UK market affected by mild weather and increased promotional discounts from competitors. Additionally, North American sales were likely impacted by uncertainties surrounding the US election. Overall, like-for-like sales in the UK decreased by 2.4% in the three months leading to November 2, while US sales saw a 1.5% decline. Across the group, same-store sales were 0.3% lower in the quarter.
Regis Schultz, CEO of JD Sports, highlighted the trading volatility experienced, especially in North America and the UK, due to heightened promotional activities and mild weather conditions. Despite a strong start to the period, boosted by robust back-to-school sales, the company faced challenges in October. Schultz mentioned that full-year profits are anticipated to be at the lower end of the guidance range, reflecting the ongoing uncertain trading environment.
The company reported a shift in consumer demand, with softer performance in October following solid trading in August and September. Notably, in-store sales outperformed online sales, and footwear sales surpassed clothing sales during the period. JD Sports expanded its retail footprint by opening 79 new stores in the third quarter, bringing the total number of outlets globally to 4,541, including those gained through the acquisition of US retailer Hibbett.
Investment experts, such as Russ Mould from AJ Bell, noted that JD Sports was on track to achieve significant profits but may now fall short of expectations. The company’s strategy of refraining from extensive discounting, unlike its competitors, could potentially yield long-term benefits by safeguarding profit margins. Analysts, including Aarin Chiekrie from Hargreaves Lansdown, pointed out that while this approach protected margins, it resulted in a slowdown in sales growth during the third quarter.
In conclusion, JD Sports’ warning about a potential profit hit showcases the evolving dynamics of the retail sector amidst fluctuating market conditions. The company’s resilience in navigating challenges and its strategic decisions in managing promotions and sales will be crucial in driving future growth and profitability, as it continues to adapt to the changing retail landscape.