JD Sports shares fell around 20% on Thursday, following the retail chain issuing a gloomier profit forecast than before
ADVERTISEMENTJD Sports shares plunged about 18% on Thursday, ending up around €1.39 on Friday afternoon, following the company issuing a downbeat profit forecast. The shoe retailer warned profits may come in about £125 million lower for the financial year ending in February 2024.
The new profit forecast is now estimated to be in the range between £915 million and £935 million, 10% less than its previous forecast.
JD Sports revealed the warning was mainly due to lower-than-expected sales during the winter and festive season in 2023, partly because of milder weather than expected. That led to fewer sales of warmer clothing such as fleeces. The company was also apparently waiting for a “late surge” in UK sales, which “did not really emerge”.
Less consumer spending continues to plague retailers
However, this did not convey the full story, as “an elevated level of promotional activity during the peak trading period” by rivals such as H&M, as well as “more cautious consumer spending” also contributed to eroding profit margins.
As Peel Hunt retail analyst Jonathan Pritchard puts it: “External factors are mostly to blame here. With no especially exciting sports fashion product launches, it has been a dullish period.”
There has been a rising trend of consumers looking around for better and cheaper deals over the Christmas and festive period, with more people affected by uncomfortably high inflation and interest rates.
With lower disposable income than before, there has been less gift-buying and festive spending than previous years, with several people opting for fewer, but more thoughtful, and lasting items. Second-hand gift buying has also seen a surge, with 64% of Europeans across Belgium, Germany, Netherlands, France, Italy and Spain saying they would consider it.
This is largely to promote local and sustainable shopping, save money, or to find quirky, nostalgic items for a unique gift.
As such, high street retailers such as JD Sports have lost out considerably, along with others such as H&M, Inditex, which owns Zara and Asos. This has been despite aggressive promotional tactics such as sales and discounts.
Shoppers now want practical, not fashionable
One of the main reasons for this is also due to the nature of goods sold at these retail chains, with most of them falling into the higher-end category which may now be out of reach for several UK shoppers. The majority of products also still focus more on fashion and appearance and are therefore more out of sync with consumer needs, which are now shifting towards the more practical and technical.
This coincides with the sportswear industry seemingly lagging a little more than usual over the past few months, mainly due to higher inflation hitting items such as footwear prices more than other goods.
According to AJ Bell investment director, Russ Mould: “When one of the biggest names in retail issues a profit warning, you know life is hard for the sector. JD’s products fall into the discretionary spending category - they are nice to have, but not essential.”
However, companies such as Next were seen on the opposite end of the spectrum, upping their profit guidance to £960 million, with Next managing director Simon Wolfson noting: “It didn’t feel to us there was a huge amount more discounting.”
