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JD Sports Fashion shares fall 5% on worsening outlook

Profits are down by almost 20% which, along with a worsening outlook, have seen the sportswear retailer’s shares drop.

(Video Transcript)

JD Sports Fashion PLC has reported a near 20% drop in profits as the company cautioned over inflation and the effects of that on consumers' spending habits.

Earnings overview

Let's take a look at the numbers as they came through this morning. The sportswear chain posted an 18% drop in pretax profits to £298.3 million for the six months through to the end of July. Before exceptional items this came through at £383.5 million.

The company remains cautious about the outlook for trading in the second half of the year, despite the fact the results were at the top end of expectations. The concerns are about the outlook and where the company is going.

Along with this, profits in North America nearly halved as a result of the temporary fiscal stimulus in the US last year, boosting sales more than usual. So the comparisons were very hard to achieve and we saw this drop.

JD Sports' share price

Let's take a look at the share price chart because this really says it all.

We were talking before the release of the numbers this morning as we saw this band between 109p and 132p in the event the stock was down over 5% at the start of today's trading.

You can see clearly the candle that we've got on this drop that we've seen here. At the worst point today, we were all the way down at the low point of 117p, which is pretty much not too far away from where we are, but 109 is the line of support.

If in the future we get further concerns about the outlook, and as we see household budgets come under further pressure because of rising energy bills, we could well end up seeing the stock disappear below that line of support and go down below a pound, which would be a significant move for this stock.

On the upside, we've got resistance kicking in at 1.32, and the recent highs now seem a long while ago in the middle of July, we were talking about 144p a share.

But clearly the outlook has worsened and the company is now in the dark situation where the second half looks as though it could well be worse than the first half of this year.

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