The JD Sports sales decline worsened over the first half of this financial year, with the sportswear retailer reporting revenues of £5.9 billion for the six months to August 1, down roughly 0.7% on the same period a year earlier, as cost-of-living pressures weighed heavily on its core younger customers.
JD Sports Fashion is a global chain of sports and fashion stores. Its customers are typically aged between 16 and 24, a demographic that has been particularly squeezed by higher fuel prices and broader inflation eating into disposable income.
How far did JD Sports sales decline?
Headline revenue was not the only measure under pressure. According to Yahoo Finance, like-for-like sales (a measure that strips out the effect of new or closed stores, making it a cleaner read of underlying trading) fell by 2.8% across the group. That is a sharper figure than the headline revenue drop suggests, and it points to weakening footfall and spending in existing shops rather than simply a smaller store estate.
The gross margin, which is the percentage of revenue left after the direct cost of goods, slipped by 20 basis points to 46.8%. A basis point is one-hundredth of a percentage point, so this is a small but meaningful erosion of profitability on every pound of goods sold, reflecting what chief executive Regis Schultz described as a “highly promotional market”, retailers cutting prices to attract cautious shoppers.
Pre-tax profit, adjusted for one-off items, tumbled by a fifth to £282 million. JD Sports cut its full-year profit outlook last month, guiding for adjusted pre-tax profits of between £700 million and £800 million, down from a previously stated range of £750 million to £850 million.
North America remains the biggest drag
The group’s biggest market, North America, recorded a 1.7% fall in reported sales. The underlying picture was considerably weaker: according to Global Banking and Finance Review, North American like-for-like sales dropped 6.8% in the second quarter alone, underlining how sharply consumer sentiment deteriorated in that market as the half progressed. The company flagged the tough global consumer backdrop as particularly prominent among US shoppers.
The UK was also weaker, with reported sales falling 1.6%. The one bright spot geographically was the Asia Pacific region, where sales rose by more than a tenth, providing a partial offset to declines elsewhere.
JD Sports ended August with 4,766 stores worldwide, meaning its chain has been reduced by more than 100 outlets since the same point a year earlier.
Nike’s struggles add to the pressure
Part of the difficulty for JD Sports lies beyond its own control. Victoria Scholar, head of investment at Interactive Investor, pointed to the struggles of one of the retailer’s most significant brand partners: ‘The struggles at Nike also have a knock-on effect on JD Sports as one of its most significant brand partners. The sportswear giant has fallen out of fashion amid fickle consumers who no longer see Nike products as highly desirable. Preferences have shifted towards newer, more exciting, nimble brands like On and Hoka, hurting the longstanding market leaders.’
JD Sports has itself flagged weaknesses in the footwear market, citing fewer big product launches from brand partners alongside lower consumer confidence within its core demographic. Running trainers, clothing and newer shoe styles were highlighted as areas of good momentum.
Cash flow guidance held steady
Despite the weaker trading, one area of the outlook was left unchanged. Yahoo Finance reported that the group’s free cash flow forecast remained at £460 million to £520 million, suggesting management believes the business is still generating cash reliably even as profits come under pressure. Schultz said the retailer had demonstrated a ‘resilient performance against a challenging backdrop of consumer cost-of-living pressures, footwear product cycle headwinds and a highly promotional market.’
The company’s next full trading update will offer the clearest signal yet of whether the Asia Pacific momentum and the steady cash flow position can hold as the crucial second half of the retail year gets under way.
