Investing.com -- JD Sports Fashion (LON:JD) has been downgraded to a “neutral” rating from “buy” by UBS Global Research, reflecting growing concerns about the company’s near-term prospects amid a challenging retail environment.
Shares of the British retail company were down 3.1% at 07:46 ET (12:46 GMT).
The revision follows weaker-than-expected performance indicators and raises doubts about the sportswear retailer’s ability to meet market expectations in the coming years.
The downgrade stems primarily from JD (NASDAQ:JD) Sports’ slowed like-for-like growth, which UBS projects will decrease by 1% in fiscal year 2026, against a previously anticipated growth of 1%.
As per the analysts, this decline, coupled with sustained store expansion, is likely to lead to profit before tax falling approximately 11% below consensus estimates.
UBS warns that even JD Sports’ ambitious store openings—projected at a 5% pace—will not compensate for broader structural and competitive challenges.
JD Sports’ dependency on major brands, particularly Nike (NYSE:NKE), is a central factor in its struggles. Nike’s allocation strategy, which has increasingly shifted products to other retailers, has intensified competition in key markets.
UBS notes that promotional pressures from rivals, along with limited boosts from new product releases by Nike, could prolong JD Sports’ lower LFL growth rates through fiscal 2028.
Compounding this, the UBS Evidence Lab survey reveals declining customer preference for JD Sports as a retail destination, signaling a potential erosion of consumer loyalty.
The analysts also highlight that JD Sports’ net cash position, combined with recent weaker cash flow generation, may limit its capacity to pursue further acquisitions—a key strategy for the company in recent years.
This constraint is further complicated by the approaching Genesis option, which UBS identifies as an added financial risk.
Despite its low valuation—JD Sports currently trades at a record discount of 69% to its peers, with a price-to-earnings ratio of 7x—UBS remains cautious, citing “too many unanswered questions” about the company’s ability to navigate these headwinds.
During a recent conference call, JD Sports’ management sought to reassure stakeholders, stating that the company’s performance aligns with broader market trends and pointing to strong sales of brands like Adidas (OTC:ADDYY) and New Balance.
However, UBS remains skeptical, especially as pre-COVID consumer spending habits resurface, characterized by more selective and promotion-driven purchases. The analysts expect these pressures to persist into the first half of 2025.
UBS has also revised its price target for JD Sports, reducing it by 34% to 103 pence from 155 pence. This adjustment reflects the cumulative impact of risks associated with weaker earnings, limited recovery potential in key markets, and structural challenges within the industry.