It wasn’t a full-on profits warning – more of a 5%-ish trim to forecasts. But JD Sports’ trading update will feel particularly disappointing to its shareholders because this was the second January in a row that the sportswear retailer has delivered a new year downer on profit expectations. The spiel was also identical, more or less.
A year ago, the group blamed “more cautious consumer spending” and “an elevated level of promotional activity during the peak trading period”. On Tuesday it cited “a challenging and volatile market that saw increased promotional activity” as revenues fell 1.5% at established stores in November and December. The only meaningful difference is that last year offered an opportunity to whinge about the weather – too mild to flog fleeces, apparently, which wasn’t the case this time.
The consistency in the messaging suggests something fundamental has shifted in the once-reliable market for trainers and “athleisure” apparel. Increased discounting doesn’t arise from nowhere.
One can speculate, first, that the big brands have pushed prices as far as they can reasonably go for the time being. Second, JD Sports is being caught in the backwash of Nike’s troubles (share price down by a third in a year), including its effort to reset by clearing old stock by going directly to consumers. Third, newer and nimbler rivals – the likes of Hoka and Roger Federer-backed On – are making a bigger impact at the fashion end and changing market dynamics. Fourth, the whole “athleisure” trend simply isn’t as buzzy as it used to be.
There isn’t much JD should obviously be doing differently strategy-wise. Its role in the ecosystem is to have the shiniest stores, cosy up to Nike and Adidas to bag sweetheart access to exclusive lines and generally try to present a “premium” image.
So chief executive Régis Schultz’s choice to maintain “pricing discipline” – refrain from grubby discounting, in other words – is reasonable for the time being. When full-year underlying profits should still be within a £915m-£935m range, versus £917m a year ago, you don’t mess too much with the formula. It is easier to climb on to the cut-price treadmill than get off it.
And it’s not as if JD is under any debt pressure. It can also console itself that the discounting pressures are concentrated in the UK and US markets. A global retailer, as JD is these days with 4,500 stores in 36 countries, cannot expect every part of its empire to be buzzy at the same time.
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The problem, of course, is that hoping for gentler conditions in the UK and US could prove a long wait, which is exactly what was signalled in the line about “taking a cautious view of the new financial year”. In those circumstances, a 6.4% fall in the share price, taking it close to a post-pandemic low of 90p, was a reasonable reaction. There’s no crisis at JD, obviously. But the soft patch, as it appeared a year ago, is starting to become the normal state of affairs.
