Shares in JD Sports slumped more than four per cent on Monday morning after analysts at stockbroker Deutsche Numis questioned the retailer’s ability to generate cash.
Analysts downgraded the stock from a ‘buy’ to a ‘sell’ and lowered the share price target from 115p to 110p.
Deutchse’s forecast was 6.5 per cent below the fashion retailer’s guidance, and said the premium to its peers it has been trading on is “unwarranted”.
Analysts expected like-for-like sales to be flat year on year, while JD Sports have predicted growth of one to four per cent.
“Whilst we see potential for positive surprise in gross margin, as promotional intensity eases, subdued overall category spend tampers our enthusiasm,” Deutsche said.
They expect consumers’ repeat-buying habits to continue to be squeezed by cost inflation and competition.
The LSE-listed JD Sports – along with Next – is widely considered to be a bellweather for the UK economy
It is 51 per cent owned by Pentland Group, the giant behind brands such as Berghaus, Lacoste, Speedo and Canterbury of New Zealand.
Deutsche also said that JD had failed to capture the cost of growth, which “is evident in deteriorating cash conversion, and as it inevitably closes with time, will present a headwind to margins,” analysts concluded.
Analysts at RBC Capital, however, took a slightly more optimistic tack. They said JD could deliver earnings in line with guidance, and added that they “[see] potential for investor sentiment on JD to improve this year.”
Analysts said that UK retail as a whole has been impacted by inflation and interest rates, with “the effects of stable to falling interest rates yet to be felt by many consumers.”
“The recent UK rate cut along with public sector pay rises and relative political stability should lead to improved consumer confidence,” analysts said, which JD Sports should benefit from.