- JD Sports Fashion identified the huge growth potential in 'athleisure' early on
- It has strong relationships with major sports brands
- Its customers still have money to spend
Georgina Brittain, co-manager of JPMorgan Mid Cap Investment Trust (JMF), explains why she invests in retailer JD Sports Fashion (JD.).
"Many UK investors still think of JD Sports – 'The King of Trainers' – as a UK retailer. In fact, it is a global retailer with over £10bn of revenue and forecast pre-tax profits for this year of over £1bn. The US is now its largest market, followed by the UK.
“Not many years ago, JD Sports was a small company with a market cap below £500mn. Three factors have been key to its huge success.
“Firstly, it identified early on the huge growth potential in 'athleisure' – athletic clothing worn as everyday wear – and realised that this was not a short-term fad but rather a permanent change in how we dress.
“Second is its symbiotic relationship with major sports brands including Nike (US:NKE) and Adidas (DE:ADS). Clearly, JD Sports needs these brands to attract customers, but the brands also understand that they need JD Sports to sell their products to this retailer's youthful target customers. So strong is this relationship that approximately 50 per cent of the products that JD Sports sells are unique to it.
“The third factor is growth – new stores and territories, and market share growth. The appeal of JD Sports' products is global.
“JD Sports has been a stellar stock market performer for many years. More recently, fears of recession in the US and UK, and the huge rise in inflation and the cost of living have significantly impacted the share price of this and other UK retailers, despite no effect on the company’s profits. So JD Sports is very undervalued compared with its history.
“However, I remain optimistic about its outlook over the long term because the three factors driving the company’s success outlined above remain intact. JD Sports recently laid out significant growth plans for the next five years and these have been endorsed by major brands who are so important to the retailer’s story. Its target customers are young, unencumbered with rents and mortgages, and still spending. But little of this reflected in JD Sports' valuation."
JD Sports Fashion was JPMorgan Mid Cap Investment Trust's largest holding, accounting for 3.4 per cent of its assets at the end of August. The trust had 31.2 per cent of its assets in consumer discretionary stocks – its largest sector exposure.
