Investing.com -- JD Sports Fashion (LON:JD) has been downgraded by analysts at Citi Research, reflecting a more cautious outlook on the retailer's growth trajectory and profitability.
The downgrade comes as the group faces a challenging consumer environment, reduced sales forecasts, and a strategic decision to limit participation in aggressive promotional activity, particularly in North America and the UK.
Citi now rates the British sports-fashion retail company stock as "neutral," lowering its price target to £0.95 from £1.50. The revised valuation reflects material reductions in the group's earnings estimates, with projected pre-tax profits for the 2025 financial year reduced by 5% to £920 million, compared to market consensus of £955 million.
Citi’s revised PBT guidance for 2026 sees a sharper decline, down 18% to £930 million. The analysts said that JD’s decision to maintain a disciplined approach to discounting, while strategically sound for preserving gross margins, is likely to weigh on revenue growth.
In their updated forecast, revenue for FY25 and FY26 has been revised downward by 1.1% and 4.4%, respectively. This is attributed to a weaker consumer sentiment and a highly promotional retail environment that JD (NASDAQ:JD) has opted to engage with minimally.
Despite these challenges, JD's gross margin is expected to hold steady at approximately 48%, with FY25 estimates slightly increasing by 10 basis points to 47.8%.
Citi noted that this disciplined pricing approach could strengthen JD's long-term positioning with key brand partners, including Nike (NYSE:NKE), which is a significant driver of the retailer's sales, accounting for an estimated 50% of revenue.
Citi also revised its expectations for JD’s store expansion, projecting space growth of 5.0% and 4.2% for FY25 and FY26, respectively, down from earlier estimates of 5.3% and 5.2%. The slower pace reflects the broader challenges in the retail sector.
Additionally, the analysts factored in the impact of JD’s recent acquisition of French sportswear retailer Courir and a new £6 million acquisition-related cost for Hibbett in FY25.
These revisions, coupled with lower sales forecasts, led to a projected 30-basis point decline in EBIT margin for FY25.
Citi acknowledged that Nike's performance could improve, thereby boosting JD's growth. However, Citi cautioned that this impact is unlikely to be seen before the second half of 2025.