JD Sports: Nike woes could spell trouble for retailer says broker

London broker Peel Hunt has downgraded its forecast for JD Sports ahead of the company’s full-year results next month due to short-term industry issues.

Peel Hunt cut its projected profit before tax and earnings per share for JD Sports by three per cent for the financial year 2026.

The broker attributed the downgrade to an overhang of Nike stock, which “is likely to persist deep into JD’s [next financial year].”

JD’s American revenue is particularly reliant on Nike footwear, but demand for the latter has faltered over the past year.

Last week, shares in Nike slumped to a five-year low after it reported a steeper-than-expected drop in fourth-quarter revenue – its fourth straight quarter of declining sales.

Nike has struggled with a post-pandemic shift away from athleisure, as well as competition from upstart trainer brands Hoka and On.

The result is a huge excess of ‘Classic’ footwear franchises: Air Force 1, Air Jordan 1, and Dunk.

“Simply put, there is an awful lot of stock left to shift, and consequently, the whole industry margin structure is impacted,” Peel Hunt analysts said.

“JD will not participate in heavy discounting, so while its gross margin should be robust, it is likely its Nike sales will suffer,” analysts added.

JD Sports’ share price has been on a steady downward slope since last September. Its value has fallen 52 per cent since the middle of September.

It is currently 72.4p, giving the retailer a market cap of £4.1bn.

JD Sports remains a top sector pick

Peel Hunt also noted that sales of other goods are unlikely to offset the downturn in Nike product sales due to low consumer confidence and spending.

This has caused a general pullback from retail stocks, with many big names taking a beating this year.

High street sales growth has been particularly poor post-pandemic and has yet to pick up, something especially tough for JD as stores tend to outperform its online channel.

Earlier this year, the Pentland-owned company warned profit would be lower than expected due to a “challenging and volatile market”.

Still, despite the near-term challenges, the broker said JD Sports remained one of the top players in the footwear market.

“In our view, JD will come out of these difficult industry times in a stronger position. It remains the big brands’ partner of choice and continues to innovate both in-store and online.

“While these big industry issues cannot help but weigh on short-term forecast momentum, we believe the long-term outlook is rosy,” analysts said.