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JD Sports Fashion Sales Decline as Customers Cut Spending

JD Sports Fashion Plc, the U.K.’s second-largest sportswear chain, said comparable sales declined in the new fiscal year as higher sales tax and rising inflation squeezed household finances.

Sales at stores open at least a year excluding value-added tax dropped 1.2 percent in the eight weeks ended March 26, the Bury, England-based company said in a statement today. That compares with full-year same-store increases of 3.1 percent.

U.K. retail sales fell the most on record in March, as consumers faced rising energy and food costs while remaining concerned about employment, according to the British Retail Consortium. JD Sports said today it’s “extremely cautious” about its outlook, adding that Easter falling three weeks later in 2011 makes year-to-year comparisons harder.

“There’s a gloom and doom around the market,” Executive Chairman Peter Cowgill said in a phone interview. “Consumers are saving a bit more in the face of job insecurity. If parents are being prudent, there’s not as much to go around.”

January’s increase in VAT means the same level of gross takings will contribute about 16 million pounds ($26 million) less than the previous year, JD Sports said. The company “largely absorbed” the VAT increase, and doesn’t expect to significantly raise prices this fiscal year, Cowgill said. To compensate, it will seek to curb discounts and weed out weak-selling merchandise quicker, he said.

JD Sports fell 64 pence, or 7.1 percent, to close at 837.5 pence at 4:30 p.m. in London, the biggest drop since October 2009. The shares have declined 4.3 percent this year, giving the company a market value of 407.5 million pounds.

‘Real Pressure’

“A combination of rising VAT, high levels of inflation and rising unemployment is putting real pressure on consumer spending,” wrote Mark Photiades and Matthew McEachran of Singer Capital Markets. They have their current “fair value” recommendation under review.

Net income was 55.9 million pounds, or 114.84 pence per share in the year ended Jan. 29, compared with 42.9 million pounds, or 88.16 pence, a year earlier, JD Sports said today. Total dividend rose 28 percent to 23 pence per share.

JD Sports said it expects a curb in customer spending at a time when merchandise costs are rising “at a material rate.”

“This might be the year that JD’s younger customers started to feel the impact of the squeeze on spending,” wrote Katharine Wynne and David Jeary, analysts with Investec Securities. Wynne and Jeary said they were cutting their pretax profit estimate for this fiscal year to 72 million pounds from 81 million pounds, while retaining their “buy” recommendation.

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