More than £1.8bn has been wiped off the value of JD Sports after the fashion retailer issued a profit warning saying that mild weather and heavy discounting had affected sales before Christmas.
Shares in the retail group, which owns Go Outdoors, Blacks, Millets and Size? as well as the JD chain, dived by 23% after the company said it did not expect to make more than £935m in annual profits, 10% below its previous guidance.
The drop in price to just below 120p a share – the lowest level in a year – made it the biggest faller in the FTSE 100 on Thursday.
Sports Direct owner Frasers Group also lost more than 3% of its value on fears that the sportswear market had been tougher than hoped, after Nike warned of poor sales before Christmas. Shares in other retailers selling clothing, including Marks & Spencer and N Brown Group, also took a hit.
Analysts at Peel Hunt said that trading and profit margins had fallen below hopes in all of JD’s territories and that underlying sales had fallen in the UK, where a hoped-for “late surge” in demand “did not really emerge”.
Jonathan Pritchard, a retail analyst at Peel Hunt, said: “External factors are mostly to blame here. The consumer is cautious and looking for a deal, and with no especially exciting [sports fashion product] launches, it has been a dullish period.”
Last month Nike said sales for the year were likely to rise by only 1%, a more pessimistic view than its previous forecast of mid-single-digit percentage growth. The bestselling sportswear brand said it was cutting jobs and simplifying product ranges to concentrate on newer launches, which are proving more profitable than old favourites.
Adidas also reported falling sales in November as it struggles to recover from the fallout from its once highly successful partnership with the rapper Kanye West, also known as Ye, which ended after he made antisemitic comments on social media.
Alice Price, an analyst at market research firm GlobalData, said the sportswear market in general was experiencing a slowdown and that JD’s focus on fashion rather than technical goods had made it more vulnerable to shoppers cutting spending on discretionary items.
A high rate of inflation, particularly on sports footwear, in the past two years has made some think twice about buying the latest version of trendy trainers, while there have been fewer “it products” to grab shoppers’ attention.
Price added that JD’s middle-market position and its core brands, such as Nike, were also under pressure as shoppers either moved towards premium specialist brands, such as Lululemon, Alo Yoga and Tala, some of which sell direct online, or high street own-labels such as M&S’s Goodmove. “They are struggling as people are trading up or down.”
JD’s profit warning raises fears about a tough Christmas for fashion retailers after mild weather meant many people held off buying coats and knitwear – more expensive items that help deliver high profits in the final quarter of the year.
Simon Wolfson, head of the fashion and homeware chain Next, which reported stronger than expected sales on Thursday, told the Guardian: “It didn’t feel to us there was a huge amount more discounting.” However, JD said there had been more than expected – suggesting different parts of the market may have been particularly vulnerable to heavy competition.
Régis Schultz, chief executive of the JD Sports Fashion group, said: “Our key markets have seen increased promotional activity during the peak trading season, driven by a more cautious consumer, but we continue to grow market share. We are confident in our strategy and we continue to invest in our supply chain, systems and stores, supported by our strong cash generation and healthy balance sheet.”
