JD Sports share price sits and waits for August 22

JD Sports Fashion (JD) shares have been under pressure this year as the company faces internal and external challenges. It was trading at 122.40p on Thursday, down by over 30% from its highest point this year and by 47% from its highest level during the pandemic.

An industry facing headwinds

The sports fashion industry is going through major changes and a strong slowdown this year. Nike, the biggest player in the industry, has slumped by over 52% from its highest point in 2021 and is now hovering at its lowest point since 2020. 

Lululemon Athletica, has dropped in the past six consecutive weeks and has moved to its lowest level since May 2020. It has slumped by over 53% from its highest level this year, shedding billions of dollars in value. 

Adidas, the giant German company, has done better as its stock has risen from 92.90 euros in 2022 to over 220 euros. Despite this rebound, its stock remains 33% below its highest point during the pandemic. Under Armour has also crashed by over 69% from the highest level in 2021. 

This performance is further evidence that the industry is going through major headwinds as growth slows after booming during the COVID-19 pandemic. 

The outdoor industry, on the other hand, is showing mixed signals. Johnson Outdoors stock has tumbled from $143.75 in 2021 to $30 while Dick’s Sporting Goods have risen to a record high.

JD Sports business is slowing

JD Sports is a leading British retailer that owns brands like Footpatrol, Size?, Go Outdoors, and Finish Line, among others. It has operations in the UK, US, and other European markets. 

Its most recent financial results showed that its business was slowing. Revenue in the last financial year rose to £10.5 billion, a 2.7% increase from the previous year. 

The numbers also showed that its gross profit margin slowed to 47.9% from 48% a year earlier while its profit before tax and adjusted items rose to £917 million and its profit before tax rose to £811 million.

Most of its revenue came from its retail stores followed by its e-commerce platform. Also, most of its business was from the UK followed by North America and Europe.

In its recent financial trading statement, JD Sports said that its like-for-like sales in the UK dropped by 6.4% while the Asia Pacific sales dropped by 0.1%. In all, its LFL sales fell by 0.7% as the company lamented about the ‘volatility and challenging’ market. 

JD Sports downgraded

Meanwhile, analysts have remained a bit pessimistic about its business. In a note this week, analysts at Deutsche Bank slashed their rating from hold to sell, citing the ongoing internal and external challenges. 

They lowered their stock target from 115p to 110p and warned that the management was being highly optimistic about its guidance. In the recent earnings, the management expects that its LFL growth will be between 1% and 4% while its capital expenditure will be between £550 million and £575 million.  Deutsche analysts said:

I believe that JD Sports will continue going through challenges in the near term as competition rises and consumer spending remains weak. 

However, in the long term, the company has a chance to execute a turnaround. The consensus estimate is that its revenue will rise to £11.3 billion and £12.32 billion in FY25 and FY26 while its operating profits will jump from £982 million to £1.18 billion in the same period. Analysts also expect that its profit before tax will move from £921 million to £1.1 billion. 

If these estimates are correct, then it means that the company is fairly undervalued since its market cap stands at £6.29 billion. This means that it is trading with a multiple of less than 8x FY 25 earnings. 

The trailing-twelve-month P/E ratio is 11.6, which is cheaper than the FTSE 100 and S&P 500 indices. In contrast, retailers like Dick’s Sporting Goods has a P/E multiple of 16 while FootLocker has a valuation of 15. 

JD Sports share price analysis

The JD Sports stock price made a big gap in January after the company provided a weak forward guidance. Its attempts to fill that gap failed as the stock found a strong resistance point at 137.55p, where it formed a double-top pattern.

JD Sports has also formed an ascending channel, which is shown in black and is oscillating at the 50-day and 100-day Exponential Moving Averages (EMA). 

Therefore, I believe that the stock will remain under pressure since the industry is still slowing. In the future, however, the stock will likely bounce back when the industry moves back to growth.

The key date to watch will be on August 22nd when the firm will publish its Q2’25 trading update and the key support and resistance levels to watch will be at 115p and 137p.