Ahead of JD Sports' full-year results next month, London broker Peel Hunt has revised its forecast for the company due to short-term industry challenges.
Peel Hunt has reduced its projected pre-tax profit and earnings per share for JD Sports by three per cent for the 2026 financial year, as reported by City AM.
The downgrade is attributed to an excess of Nike stock, which "is likely to persist deep into JD's [next financial year]."
JD's American revenue heavily relies on Nike footwear, but demand for the brand has waned over the past year.
Shares in Nike fell to a five-year low last week after it reported a larger-than-anticipated drop in fourth-quarter revenue – marking its fourth consecutive quarter of declining sales.
Nike has been grappling with a post-pandemic shift away from athleisure, as well as competition from emerging trainer brands Hoka and On.
This has resulted in a significant surplus 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," said analysts at Peel Hunt.
"JD will not participate in heavy discounting, so while its gross margin should be robust, it is likely its Nike sales will suffer," they added.
Since last September, JD Sports' share price has been on a consistent decline. Its value has dropped 52 per cent since mid-September.
Currently, it stands at 72.4p, giving the retailer a market cap of £4.1bn.
JD Sports remains a top sector pick
JD Sports continues to be a leading choice in the sector, according to Peel Hunt. The firm also highlighted that the decline in Nike product sales is unlikely to be offset by other goods due to low consumer confidence and spending.
This has led to a general retreat from retail stocks, with many major brands suffering this year. High street sales growth has been notably weak post-pandemic and has yet to recover, which is particularly challenging for JD as its stores usually outperform its online channel.
Earlier this year, the Pentland-owned company warned that profits would be lower than anticipated due to a "challenging and volatile market."
However, despite the near-term challenges, the broker stated that JD Sports remains 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."
Analysts added: "While these big industry issues cannot help but weigh on short-term forecast momentum, we believe the long-term outlook is rosy."
