Share Prices & Company Research


29 March 2021

The Stamina of JD Sports

The next major step in England’s lockdown easing schedule is the reopening of non-essential retail on 12th April. Non-essential retail was forced to close on 6th January due to the UK government’s fears that the second wave of COVID-19 could soon push public health services to breaking point. With the current vaccine program proving successful, it is hoped that this time reopening will be permanent, marking the end of forced closures and providing a needed shot in the arm to an already struggling sector.

Just over one year ago, the UK high-street was plunged into its first lockdown, but even before this the picture for high street retailers was bleak. Established retailers were unable to find an answer to the growing competitive threat of online retailers who were able to offer consumers greater convenience, an effect that was amplified when physical stores were forced to close.

JD Sports had long been hailed a winner in the declining UK retail sector due to the business’ ability to secure exclusive in-demand products while also, and perhaps most importantly in this context, invest in its store portfolio to create an environment that would attract greater footfall than its rivals. So, with physical stores forced to close, would JD Sports finally suffer the fate of its peers? Contrary to analysts’ expectations, JD Sports has demonstrated resilient performance throughout the lockdown periods and has been able to strengthen its position in the global athleisure market via strategic acquisitions.

Despite the sudden nature of the first lockdown, JD was able to retain 65% of its previous year’s UK sales through its online offering and once management was able to adapt to the new environment this figure grew to 100% during the November lockdown period. This meant that online sales were up 150% year-on-year at a point where online was already at its peak. Strong online performance has been credited to the business’ omnichannel capabilities; an asset that has perhaps been overlooked in the past. JD also saw improved performance within its online offering in other markets such as the US where online penetration increased from 30% to 35% and Europe with online penetration eclipsing 22%. While the expectation is that online will fade as physical stores are allowed to re-open, this period has highlighted the resilience of the JD model in the face of online competition.

JD has been able to leverage this resilient performance, acquiring key assets in future growth markets. Following JD’s entry into the US via the Finish Line acquisition in 2018, the group has recently followed up with two further deals, acquiring Shoe Palace and DTLR, which has taken the group’s overall US exposure up to 38%. Furthermore, the group recently acquired a 60% stake in Marketing Investment Group (MIG) that operates 410 stores across Eastern Europe, a market management has identified to have strong long-term growth potential.

In addition, the pandemic has accelerated pre-existing trends of casualisation and healthy living as many of us have been forced to work from home and have been gifted greater free time to focus on lifestyle choices. These trends were already apparent pre-pandemic and had been a key growth driver of JD’s core athleisure offering. While such effects may fade once normality resumes, it is likely that elements of this period will become more common moving forward, providing further organic growth opportunities to JD’s core offering.

JD Sports will undoubtedly welcome the re-opening of physical retail and it is likely this will be reflected within second-half earnings but this difficult period has highlighted an element of resilience many were once unaware of and has allowed the group to capitalise on lucrative expansion opportunities.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
The Stamina of JD Sports
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