JD Sports Fashion PLC (LSE:JD.) shares fell 8% on Wednesday morning as the retailer reported annual results and revealed worse first-quarter trading than expected, though analysts said there were silver linings.
Pre-tax profit for the year to March came in line with the consensus forecast and adjusted earnings per share were slightly better than forecasts.
However, group like-for-like sales were down 2.0% in the first quarter, whereas the consensus was for a decline of around 1%.
UK LFL sales were flattish, which was better than expected and European sales also outperformed estimates, but a 6% fall in North America LFLs was much worse than the 1% decline predicted, said UBS, while gross margins were roughly in line.
"While the reaffirmation of FY26 guidance provides some reassurance, it may not fully satisfy investors given the weakness in the US market," said UBS analyst Robert Krankowski.
"The region was a negative surprise and despite management's explanation attributing it to timing shifts in product launches, it could still heighten concerns, particularly in the context of an uncertain consumer outlook for the second half of the year."
Additionally, looking beyond the new year, Krankowski said the recent announcement of the acquisition of Foot Locker by Dick's Sporting Goods "introduces potential for increase competitive pressures over the medium-term".
Panmure Liberum's Anubhav Malhotra said the Foot Locker deal at 18 times earnings "highlights the relative undervaluation of JD Sports, which generates six times the PBT but has a market cap only 2.6x higher than Foot Locker’s purchase price".
The updated medium-term strategy to leverage the substantial operational and capex investments made over the past two years "appears prudent", and consensus expectations "now look more realistic".
But the tariff impact, though manageable, keeps Malhotra cautious on the shares, though he said "long-term investors should be considering investing at this level".
Analyst David Hughes at Shore Capital said JD's valuation was "undemanding" as although trading in the first quarter was "obviously not ideal" it was in line with his forecasts for the full year, with the company remaining profitable and increasingly focused on cash generation.
He was encouraged by the positive LFL sales in the UK and Europe, with an improving trend in the UK "particularly pleasing, even if it has been supported by the recent warmer weather".
North American declines are discouraging, Hughes added. "With the impact of tariffs on prices, US consumer confidence and the US economy all still uncertain and with the high exposure the American business has to Nike (which still has work to do on its recovery), we expect this to remain a point of weakness in FY26F.
"However, looking past this and into the medium term, we still see the US brands and JD’s comprehensive geographical presence as a key driver of growth and profit for the business."
He also highlighted the group's high cash generation despite challenging conditions, with a recent strategic update seeing management announce plans to reduce capex spend and initiate a £100 million share buyback programme.