Subdued Q2 growth expected given more difficult market backdrop, volatile demand, weak apparel + Nike innovation JD Sports has reported 2Q Group organic sales up 8.3% with LFL sales down 2.4%. This is a sequential improvement on 1Q (organic sales up 4.9% with LFL down 0.7%), helped by weaker comps, as expected. Performance continues to be impacted by a more challenging market backdrop where demand remains volatile. Gross margin for the Group in the period was 48.4%, down 30 bps YoY mainly due to a decline in apparel and online. Focus will be on continued weakness in the UK (2Q LFL sales fell 0.8% vs 1Q -6.4%). However, there are encouraging signs in North American (2Q LFL +5.7% vs 1Q +2%), where performance picked up materially QoQ, despite a continued weak market backdrop and promotional environment. Europe and Asia reported double digit organic sales growth, driven mainly by space. Europe organic sales grew 10.5% (1Q +10.8%) with LFL sales +3% (1.6%). Asia organic sales grew 10.5% (1Q +10.1%) with LFL sales +0.1% (1Q down -0.1%). On track to achieve previous FY guidance Management has reiterated FY25 adjusted PBT guidance of £955m-1,035m pre Hibbett, which includes a c.£55m annual profit benefit from an accounting policy change with amortisation of acquired intangibles as an adjusting item now taken below the PBT line. We had already updated our forecasts to reflect the completion of the Hibbett acquisition at the end of July, with our underlying forecast ex Hibbett towards the bottom end of the guidance range (see note Adding Hibbett, published 21/8/24). The undemanding valuation (CY25E PE 8.4x) suggests to us that investors continue to question how long NIKE’s underperformance may weigh on JD’s short term growth. While we believe the valuation does not reflect the strength of JD’s market position, its future growth potential, or the Hibbett acquisitions, investors still need confidence around the industry rebound and future margin recovery potential. Evidence of this is unlikely until 2H when better innovation should start to come through from NIKE.