Analysts of JD Sports Fashion PLC (LSE:JD.) believe it is “unwarranted” for investors to read across from Dick's Sporting Goods' (NYSE:DKS) profit warning to the British fashion retailer.
The fall in JD Sports shares of more than 8% on Tuesday came after the US sporting retailer posted poor second-quarter results and said it would be cutting around 250 corporate jobs.
“From our perspective, the read-across is unwarranted,” said Shore Capital analysts, who believe there are few similarities in the margin shortfall at Dick’s and JD Sports’ current performance.
Shore Capital noted an inadequate stock provision of only 1% at the US retailer, which is much weaker than JD’s 5%. This in turn means Dick’s, which said it is experiencing a large spike in thefts, is more likely to face significant write-downs compared to its British rival.
“While theft remains a real challenge for retail, especially in the USA, [JD Sports] notes how ‘one needs to be a one-legged thief'... when it comes to JD as it is most focused on footwear and only one shoe is on display,” Shore Capital said.
A man accused of stealing golf clubs at Dick's (Source: New York Post)
Dick’s also reported a markdown in its outdoors segment, an area JD has a smaller focus on, with the division making up only 6% of the UK company’s total revenues in 2023.
Shore Capital added: “Additionally, we note that the observed weakness in DKS's apparel segment holds a lesser concern for JD in the US and, contrary to expectations, there hasn't been a shift towards more affordable products from premium ranges even at DKS.”
Rating JD Sports a ‘buy’, the British analysts said it maintains a “positive outlook” on a stock it believes is discounted to the rest of the sector.
Shares in JD Sports are up 1.5% on Wednesday, having opened at around 141p.