JD Sports: working out

Sportswear once remained confined to Jane Fonda fitness videos and televised track and field events. No more. The “gym selfie” is a necessity for any aspiring social media influencer. JD Sports Fashion aims to take full advantage of this shift. On Monday, it revealed how it has outrun other UK retailers this year. A positive Christmas lifted its like-for-like sales by 5 per cent.

Unlike others JD Sports did not discount its prices to create a buff image. This meant firm profit margins, keeping earnings in good shape. Those could now be higher than expected for the full year. The sportswear retailer needs to stay fit given its ambitions, including a push i nto the US.

First, though, it has taken a run at rival Sports Direct, aiming to grab market share. That is up nearly six percentage points to 21.9 per cent since 2015. JD’s share price in recent months has begun to outpace Sport Direct but its valuation at about 14 times forward earnings is still near the low end of the five-year range.

Key to its success are the relationships it maintains with Adidas and Nike. The major brands increasingly sell more of their own gear direct. About a third of Nike’s sales go direct to consumers, say Berenberg, who think Nike wants to raise that to about half. JD Sports has strong partnerships with both big brands. It gets any new sportswear ranges before rivals Sports Direct and, more important, Amazon.

JD Sports can do more. Sales outside Europe made up just 5 per cent of revenues in 2017. Buying US chain The Finish Line last year added 1,000 stores and concessions in the world’s largest sportswear market. Increasing profitability should not be too hard. Margins on ebitda (a cash earnings measure) at The Finish Line were 4.4 per cent last year compared with 12 per cent at JD Sports and US rival Foot Locker. However, muscling in on the latter will not come easily. It too has strong relationships with the big brands.

Sportswear retail is not for the flabby. Doubling profitability at The Finish Line will boost JD’s operating profits perhaps by a fifth. The true competition is on its home turf.



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