JD Sports LON:JD. shares were trading up on Monday, nearly 10%, reversing a trend which saw them give up over 20% in the last month. This followed a cautious upgrade from Deutsche Bank, which removed its sell rating on the stock.
Nike’s recent struggles are creating uncertainty for JD Sports. JD Sports relies on Nike’s strength since its products typically have higher price tags than other brands, helping boost profits.
More margin volatility is inevitable as other brands gain more shelf space in stores. These brands usually have shorter product life cycles, leading to increased promotional activity.
JD Sports faces less margin volatility in the UK due to higher apparel sales. In Europe and the US, where apparel is a smaller share of the mix, volatility increases. To counter this, JD is pushing more apparel, especially in the US, to balance out footwear fluctuations.
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“JD Sports is finding it tough to translate its UK success to international markets,” said Yanmei Tang, a retail analyst with independent research house Third Bridge. “It’s grappling with site availability in Italy, affordability issues in Eastern Europe, and tricky market conditions in the US.”
Will earnings drop slow JD Sports down?
AI stock analysis service Bridgewise rates JD Sports a Hold at the moment. It highlighted a 5.2% growth in revenue, offset by a 90% drop in earnings per share for the sports retailer as significant factors likely to influence the future share price performance.
Long term, JD Sports has exhibited 16 quarters of quarter on quarter growth in its income line, which is illustrative of stability and the potential for future growth. The EBITDA margin showed an improvement from 14.9% to 15.1% against the corresponding quarter last year. Free cash flow was looking fairly static and there is a question mark hovering over the size of the JD Sports dividend. The dividend yield is already quite low, however, at 0.6%.
JD Sports is rated just above the retail industry average in terms of its core metrics.
JD Sports shares: latest trend analysis
Trend Intelligence took a closer look at JD Sports shares. As we can see from the chart below, in the top chart the most recent red candle is trading below the medium term average (yellow line), while the shorter length (white) line is also trading above the medium term line.
The most recent red candle is trading below the blue Japanese cloud zone, which is setting up a negative trend signal for the shares.
The D* Momentum Indicator, which is shown in the second chart, is also negative. More neutral indicators are shown in the bottom two charts – R* and M* momentum indicators respectively. The R* area is showing negative, but the yellow signal line is positive, so overall this look to be a neutral signal.
In the bottom chart, because the red M* line is below yellow signal line but all are operating above the zero cut-off, another neutral signal is showing.
Trend Intelligence rates JD Sports as a 58.3% sell/negative based on its signals, with 25% buy/positive rating. The short term view is for a strong negative trend, although there are a mix of both positive and negative signals in action here.
