JD Sports Fashion PLC (LSE:JD., OTC:JDSPY) shares were boosted after Nike earnings beat expectations, but UBS said the retailer may face near-term challenges from increased promotions in Europe.
In the US sportswear giant’s first-quarter results it revealed that gross profit margin decreased by 320 basis points due to average selling prices falling because of higher discounts and higher tariffs in North America.
UBS analysts noted that JD Sports has historically been affected by a stepping up of Nike’s promotional strategy, particularly in the Europe, Middle East and Africa region, where discounting in the wider sector has increased.
"This could present a headwind for JD Sports, historically highly sensitive to changes in Nike's promotional strategy in Europe.
"At the same time, Nike's strong traction with product allocation expansion supports our view that Southern States may remain a more challenging market for JD Sports given rising competition.
"More importantly, Nike reiterated its commitment to completing inventory clearance in the first half of FY26."
On the plus side, the fact that both Adidas and Nike, the two largest footwear brands sold in JD's various retail chains, are delivering sales growth of more than 20% in the running category (around half of JD Sports footwear sales in Europe and the UK) this "may bolster hopes for a stronger LFL recovery in the next fiscal year".