JD Sports warns over tough outlook

Retailer JD Sports has revealed a 21% leap in profits but warned that margins were being squeezed by a rise in its costs, which it has struggled to pass on to cash-strapped consumers.

The group, which operates 350 JD Sports and Size? outlets in the UK, said underlying profits increased to £81.6 million in the year to January 29, on sales up 15% to £883.7 million.

But the Bury-based retailer said net sales had declined by 1.2% in the first eight weeks of its financial year and warned that Government austerity measures had significantly impacted the retail environment.

This, combined with January's increase in VAT to 20% from 17.5% and hike in its costs, left it "extremely cautious" about its outlook.

Numerous retailers, including HMV, Mothercare, Currys and PC World parent Dixons Retail, have issued profits warnings in recent weeks after consumers suffered their first decline in disposable income for 30 years, as wages fail to keep pace with inflation.

JD Sports has performed well in recent months after stealing market share from its ailing rival JJB Sports but revealed it is not immune from the squeeze on the high street.

It said that it anticipates a reduction in real spending from consumers this year and warned that the hike in VAT could wipe £16 million from its profits at current levels as it struggles to pass on the increase.

The gloomy trading outlook overshadowed better-than-expected profits figures for the past year, in which analysts had expected underlying profits of £79 million.

Same-store sales for the year increased by 3.1%, with its sports fascias enjoying a 3.8% lift despite a slowdown in the second-half, although this was partially offset by a 0.7% decline at fashion shops, such as Bank and Scotts.

Investec Securities said pressures on the sector meant it expected to cut its profit forecast for the current year from £81 million to £72 million.