The JD Sports Fashion (LSE: JD.) share price has lost around 65% since late 2021. After an upbeat trading update on 9 April, JD shares started picking up and it looked like a recovery might be on the cards
But then came the actual results on Wednesday (21 May). The share price fell over 10% on the day, pulling back just a couple of percent Thursday.
Shareholder returns
Boosting confidence in the company’s cash prospects, CEO Régis Schultz said: “Our focus on increasing shareholder returns is demonstrated by paying FY25 dividends of £52m, up 11% on the previous period, and after the period end, the commencement of a £100m share buyback programme.”
The dividend yield is still only around 1.2% though, so it’s maybe not one to retire on just yet.
Why did the share price fall on the day? The CEO also spoke of “uncertainty surrounding the impact of US tariff changes.”
Other retailers have spoken of tariffs, so they’re nothing new. But JD was more specific than most on the ways it sees its business possibly suffering. There’s a variety of threats, but there seem to be two main ones.
US demand hit
Firstly, there’s a clear potential impact on prices for US customers, with around 40% of JD’s sales coming from the USA. That, combined with weakening consumer confidence, could hit demand. The firm sees this as the biggest danger.
Also, JD’s brand partners souce much of their merchandise from South East Asia, where tariffs could also hit costs. Supply chain changes could help mitigate this category of damage.
I’m not sure things are any worse than for other companies in this business. It might just be the specific clarification that spooked the market. But it’s good to see shareholder infomation prioritised over any potential short-term price hit.
What to do now?
The ‘US vs everyone’ trade war seems likely to push up global inflation and cause some harm to company profits. But I think it’s a mistake to base investing decisions on that rather than long-term health and valuations.
On that score, I think the negative reaction this week could turn out to be a mistake.
Forecasts suggest a 2025 price-to-earnings (P/E) ratio of 12, which might seem fair given the year ahead. But they’d drop it close to just seven by 2027. That seems cheap. But it depends on whether the underlying business model can keep expanding as hoped.
Full-year outlook
JD didn’t offer any specific guidance update with these results. But the first quarter did go in line with previous guidance. April’s update suggested profit before tax for the full year should be in line with the forecast analyst consensus. And I expect that means the consensus will be maintained, at least for now.
So how low might the JD share price go? I’m optimistic that it might not be much lower and we could be around the bottom now. Despite the risks, I think long-term investors should be considering it at today’s valuation. But it might be wise to expect slower future earnings growth.
