Shore Capital has kept a 'hold' rating on JD Sports Fashion Plc given the "muted outlook" for the sports apparel retailer next year, but said it sees a number of positives in Wednesday's trading update.
Fourth-quarter sales at JD Sports slipped further during the Christmas period as a return to growth in North America - the retailer's biggest market - was offset by a weak performance in the UK and Europe amid a volatile consumer environment.
Group like-for-like sales fell 1.8% in the nine weeks to January 3, compared with a 1.7% decline in the previous quarter.
Within this, North America LFL sales rose 1.5% after falling 1.7% in the third quarter, while UK and Europe LFL sales were down 5.3% and 3.4% respectively with trends worsening over the three-month period.
"We spoke last week about JD's need to build confidence and deliver on guidance and today's results, whilst still seeing LFL decline, are very much in-line with expectations and so, in our view, good progress on these objectives. LFL sales declines slowed slightly versus the previous three quarters and a return to growth in the key US market is very encouraging," Shore Capital said.
The broker also highlighted "commendable" strong balance sheet and cash generation, with the company guiding to £400m of free cash flow this year, which should support further shareholder returns following the £200m of share buybacks during FY26.
The stock's current valuation is "undemanding", Shore Capital said, though investors may want to "keep cautious for now" due to an uncertain outlook for FY27, on the back of weak consumer spending and key partners like Nike still being in the earlier stages of pipeline innovation.
The stock was up 4.0% at 81.38p by 1106 GMT.