JD Sports Fashion PLC (LSE:JD., OTC:JDSPY) has been downgraded by RBC Capital Markets as it views sportswear markets as "highly promotional", with lower-income consumers under pressure from the elevated cost of living.
Cutting the rating to 'sector perform' from 'outperform', with a 100p price target, analyst Richard Chamberlain said JD remained "a well managed and very cash generative business", but the shares had already risen by about 15% this year.
The analyst said the outlook remained difficult in the US, JD's largest market at around 38% of sales, where lower-income shoppers are sensitive to cost-of-living pressures from higher petrol prices.
Furthermore, tougher comparative figures from last year and a lack of "brand heat" at major names such as Nike also pose challenges.
Chamberlain expects US consumer behaviour to be "K shaped", in that JD's core customers will be under more pressure than wealthier shoppers.
Forecasts for pre-tax profit in the 2027 financial year were cut by 2% to £765 million, at the lower end of JD's guidance. RBC's estimates are also 3% below the City consensus for the 2027 financial year and 4% below for the following year.
The analyst was more positive about JD's European distribution improvements, including greater automation, lower unit costs and faster store replenishment.
However, he expects the retailer to halve its German store estate from about 100 locations over the next year.
While JD shares trade at a relatively low eight times forecast 2027 earnings, the analyst warned that "it will take some time for overall industry conditions to improve".
