This year’s award for the first shopkeeper to cite the weather in its Christmas profits warning goes to JD Sports. Specifically, the group didn’t care for how mild it has been – not good for shifting fleeces – although the same temperatures didn’t seem to bother Next, which turned in its usual upgrades to forecasts.
So the story probably lies in the other factors mentioned by JD. The group blamed “more cautious consumer spending” and “an elevated level of promotional activity during the peak trading period”. Possible translation: more and more punters think the entire ‘athleisure’ industry – from big brands such as Nike and Adidas, to the likes of JD itself – had elevated prices to silly levels.
Who could blame them? When the retail price of the latest “essential” variation on an old line of Nike trainers is £175, more than a few would-be buyers may conclude that a purchase is actually inessential, or decide to wait until the product goes on sale.
In the past, the industry has tended to dismiss such concerns as the fogeyish thinking of those who don’t understand the must-have status of the buzzier fashion ranges. And it has usually been able to demonstrate its point: the hype machine in crossover sportswear is a wonder of modern marketing. Yet this Christmas season seems to have been marked by a mass outbreak of late discounting by big brands and retailers, with JD obliged to join in.
The intriguing aspect is that JD’s profits warning, like Nike’s before Christmas, comes at a moment when the trading backdrop wasn’t obviously unhelpful. Overall employment levels, it used to be said, dictate the real incomes of the core 16 to 24-year-old target market and, on that front in the UK at least, there isn’t a problem, notwithstanding wider cost-of-living pressures.
As recently as late-September, JD said it expected headline pre-tax profits for this financial year to arrive at £1.04bn, so the latest prediction of £915m-£935m represents a £100m-plus gap that has appeared over the peak season. That’s chunky.
JD could still report a 1.8% improvement in like-for-like revenues in the last five months of 2023 and, with the contribution from new stores, overall revenues should still be 8% higher over the course of a financial year that closes in early February. This is still a growth company making a very substantial profit and enjoying the benefit of a diversified revenue base that is split roughly evenly between the UK, the rest of Europe and the US. Nor is JD’s closeness to major brands, and thus its ability to get sweetheart access to the top lines, about to disappear.
Yet the 23% slump in the share price still looks rational. There is a new uncertainty here. Has the industry’s phenomenal ability to crank the fashion handle and maintain pricing power reached a natural ceiling for now? JD didn’t venture a forecast for the 2024-25 year. Very wise: the mood among athleisure consumers seems to have turned very suddenly.
