JD Reports Amid UK Apparel Market Jitters

Prior to JD Sports Fashion announcing its financial results, the clothing sector in the UK has fluctuated between optimism and fragility, influenced by both pricing and customer demand.​

Hoping for Stability

While inflation has reduced over the course of the year, the outlook for UK retailers was improving. However, consumer confidence in September saw a significant turnaround, eliminating all gains from the summer. This could pose difficulties for UK apparel retailers, as inflation has led British shoppers to trade down to cheaper brands or avoid non-essential spending in order to budget for groceries.

Unsurprisingly, Frasers' shares dropped 2-3% following the data's release, with investors also penalising Next despite the firm's growth coming mainly from overseas. Adding to budget apparel group Frasers' challenges, two fashion brands faced audits, which may make investors somewhat uneasy as it recalls financial monitoring issues from 2016.​

Where Things Go From Here

On Wednesday, JD Sports Fashion will provide more details to its financials which were previously outlined in an August trading update. According to the update, organic sales increased 8.3%. However, like its peers, the company saw stronger growth overseas with North American sales up 13.7% versus a 1.2% rise in the UK. CEO Regis Schulz noted the improved performance was driven by opening new stores and gaining greater market share rather than increasing margins through higher prices.

Frasers is pursuing a similar strategy but through acquisition. On Monday, the company offered to acquire the remaining stake in Mulberry after the company announced a capital raise without informing its largest minority shareholder. The proposed £52.4 million price tag is modest for Frasers which reported a £835.6 million trading profit in the last fiscal year. At least it provides something for investors to focus on as the budget sports retailer is not expected to announce earnings until early December and it said nothing of interest in its September 18 meeting.

Despite a recent dip in consumer sentiment data, UK apparel retailers remain optimistic about demand from British customers - assuming the weather remains seasonal allowing shoppers to update their wardrobes as temperatures fall.​

JD Sports Fashion in Wedge?

JD Sports Fashion stock is approaching an important resistance level near 170 pence, which may influence price movement in the medium and long term. Reaching the upper boundary of a broadening wedge pattern that might have formed between 185 and 100, passing through 175 and 125, implies the price may reverse direction towards recent lows via 150, 140 and 110. Alternatively, if the price accelerates upwards past previous swing highs and off towards the 200 handle, the pattern will not be valid.​

Source: SpreadEx JD Sports Fashion

Key Takeaways

Prior to JD Sports Fashion announcing its financial results, the clothing sector in the UK has fluctuated on prices and customer demand. While inflation fell over the year, consumer confidence declined in September, eliminating gains from summer, potentially posing difficulties for UK apparel retailers. Frasers faces challenges with two fashion brand audits causing investor unease recalling prior financial issues. On Wednesday, JD Sports will provide financial result details previously outlined in an August trading update showing 8.3% organic sales growth and stronger overseas growth.