JD Sports shares plunged by 15 per cent on Thursday morning after the British sportswear retailer issued its second profit warning in three months following a sharp downturn in US sales.
The company cut its full-year profit guidance to between £700 million and £800 million for the year ending in late January. Executive directors had previously signaled to investors that pre-tax earnings would reach between £750 million and £850 million.
Group sales in the 13 weeks to August 1 fell 3.1 per cent as the business struggled against widespread discounting across the broader footwear and sportswear market. Management stated that trading across the summer period remained tough as consumers responded to incremental cost-of-living pressures.
JD Sports Fashion plc, which markets itself as the King of Trainers, had previously been targeting entrance into the £1 billion annual profit club. That benchmark has been reached by only a select group of major British retailers, including B&Q parent group Kingfisher and supermarket operator Tesco. The embattled group has long been regarded as one of the most reliable performers in British retail.
North American slowdown and supplier headwinds
Chief executive Régis Schultz highlighted North America as the primary source of weakness during the second quarter. "Trading in the second quarter remained tough. The market stayed highly promotional, reflecting the consumer and footwear product cycle headwinds our industry has faced in recent quarters, whilst our core consumer was impacted by incremental cost-of-living pressures," Schultz said.
Schultz explained that North America experienced the most acute impact from these pressures. "North America saw the most acute impact, also reflecting a slower quarter for high-heat footwear product and the timing of 'back-to-school' demand," Schultz added.
The retail group has also been weighed down by sales difficulties at Nike, its primary footwear supplier. Nike has struggled in recent quarters to defend market share against fast-growing performance running shoe brands including On and Hoka.
By contrast, performance in the domestic market showed modest growth. Sales in the United Kingdom rose 0.8 per cent during the period, driven by strong customer demand for football replica kits during the World Cup tournament.
Analyst views on consumer pressure
Richard Hunter, head of markets at financial platform Interactive Investor, noted that inflation is taking a heavy toll on younger shoppers. "Lower-income shoppers are under pressure due to rising energy costs and any cost-of-living demands on individual budgets, particularly in its core younger market," Hunter said.
However, Hunter pointed to underlying strength in broader fitness spending among higher earners. "More positively, sportswear continues to take share within apparel due to rising participation in athletics, particularly among higher-income consumers who tend to have a greater propensity to spend regardless of the economic backdrop," Hunter said.
Boardroom conflict and leadership change
The trading update follows several weeks of corporate governance turmoil at the retailer. Former Ikea chief executive Peter Agnefjäll has been appointed as incoming chairman and will officially assume the post at the beginning of September.
Agnefjäll will take over from interim chairman Darren Shapland, who stepped into the position in April following an internal boardroom battle. Former chairman Andy Higginson left the group abruptly after failing in an attempt to unseat chief executive Schultz over the company's sluggish growth in North America and falling sales figures.
