Image source: Getty Images
It’s been a miserable time for the JD Sports Fashion (LSE:JD.) share price. In October, the retailer was forecasting a profit before tax and exceptional items of £955m-£1.035bn for the year ended 1 February (FY25).
A month later, it warned that its result would be at the “lower end” of this range. And then in January — blaming a “challenging and volatile” market — it revised its estimate downwards to £915m-£935m.
As a result, its share price is currently (3 March) around 50% below its 52-week high.
Don’t panic
As a shareholder, this is obviously disappointing. But in these circumstances, I look at other companies in the same sector to see how their share prices are performing.
For example, since last March, JD Sports share price has tanked by 33%. Over the same period, Frasers Group, owner of rival Sports Direct, is down 22%, and Nike’s (NYSE: NKE) stock price has fallen by 20%. This tells me that the sector as a whole is out of favour. I can relax a bit now.
However, look at its performance over a shorter period of time and a different picture emerges.
Closer scrutiny
Since September, JD Sports and Frasers Group shares have fallen by 28% and 41%, respectively. However Nike, the world’s largest sportswear brand, has seen its stock price fall by just 2%.
This could be a sign that investors believe the company’s self-inflicted problems — namely, a lack of product innovation, unsuccessfully trying to sell more through its own stores and moving away from its sporting origins — are slowly being resolved.
Indeed, for the quarter ended 30 November, earnings per share (EPS) was $0.78, comfortably beating analysts’ expectations of $0.63.
For the four quarters to this date, EPS was $3.24. This means the stock trades on a historical price-to-earnings (P/E) ratio of 24.5, which is very low by recent standards. For most of the past five years, it’s been comfortably above 30.
Encouragingly, Nike’s new boss said the company would provide “unwavering commitment to our wholesale partners”. This can only be good news for JD Sports, which says the American sportswear giant is its number one partner worldwide. Although not confirmed, it’s believed over 50% of the British retailer’s revenue is accounted for by Nike’s products.
And this figure’s likely to be higher now that it’s bought Hibbett, which operates nearly 1,200 stores in the United States.
For the JD Sports share price to recover, I believe Nike must do better.
Back in fashion
It’s certainly trying to. Last month, the American sportswear giant announced the impending launch of a “collaborative sub-brand” with Kim Kardashian, a huge fashion influencer and the celeb behind the Skims label. The first collection of NikeSkims should arrive shortly.
It’s all part of the brand’s strategy to become more relevant to women. It follows on from its expensive SuperBowl advert celebrating iconic female athletes.
But there’s more to JD Sports than Nike. It sells numerous brands including emerging, fast-growing ones like HOKA and On Running. And yet its stock currently trades on a miserly 6.6 times forecast FY25 earnings.
This is despite the global athleisure market predicted to grow by 9.2% a year until 2034. And young people — who make up the bulk of the buyers — view sportswear as their first choice for spending their discretionary income.
Overall, I think investors looking for a long-term growth stock could consider JD Sports.
