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Over the past five years, the JD Sports (LSE: JD.) share price has fallen 23%. With the post-Covid retail boom well and truly over, and competition in the athleisure space increasing, the question I’m increasingly asking myself is whether the stock can get its mojo back.
FY25 results
Yesterday (21 May) the business reported its FY25 and Q1 26 numbers. Despite revenue increasing in 2025 by 8.7%, operating profit fell 2.6% to £903m. This was due to large capital expenditure on expanding its store estate and improving IT security.
Two years ago, when sales of athleisure were at a peak, JD Sports set out an ambitious strategy of opening at least 400 new stores. This, it more than achieved. But at what cost?
There is no doubt that the global sportswear market is still in its growth phase. But the rate of growth is far lower than initially anticipated, which has impacted like-for-like sales.
Today, 80% of the company’s revenues are derived from stores. I find that hard to square with its much touted capital-light franchise model approach. Indeed, online sales have been in decline since peaking during lockdowns.
US investment
The retailer’s rapid expansion over the past few years means that it’s now a truly international business. But it’s the US where it continues to plough most capital into. The acquisition of Hibbett in 2024 means that nearly 40% of revenues comes from the US.
The US is a totally different market from the UK, with a greater number of competitors. Over the past couple of years, its competitors have repeatedly caught it off guard with the aggressive nature of discounts. A commercial strategy based off full price certainly ensures that margins are preserved. But with consumers continuing to struggle, the risk is that they might decide to shop elsewhere permanently.
Tariffs
In the near term, the biggest unknown for the business remains tariffs. In his review of Q1 26, the CEO stated: “the cost of goods and services for US customers may rise to some degree with a potential impact on overall consumer demand. We consider this to have the largest potential impact on the Group.”
But tariffs don’t just have the potential to hit sales. They could also lead to elevated manufacturing costs. Its brand partners source most of their products from South East Asia. Supply chains will eventually adapt. However, a higher structural cost base is a very likely long-term outcome of increasing deglobalisation trends.
Don’t get me wrong. JD Sports remains a strong business with global brand appeal. Several traditional valuation metrics clearly point to a buying opportunity. Its forward price-to-earnings (P/E) ratio is just seven. And its enterprise value of £7.6bn is well below its market cap.
However, its rapid expansion over the past two years looks to have backfired to me. As its scale and reach has ballooned, so too have the need to scale its IT infrastructure (including security) and governance processes. This has all had a knock-on effect on bringing new distribution centres online, thereby increasing costs.
Investors who can stomach volatility and have a long-term mindset could profit. But the near-term uncertainty makes it too risky an investment for me.
