Why JD Sports Fashion can buck the retail trend

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Why JD Sports Fashion can buck the retail trend
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Master Investor Magazine

Master Investor Magazine Issue 54

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Robert Stephens discusses why JD Sports Fashion has the right strategy to deliver capital growth over the long term.

Given the uncertainty facing the UK retail sector, it is easy to discard all retail stocks as potential investments. After all, UK consumer confidence has been negative for the last three years, with it currently standing at -14 according to the GfK sentiment index.

However, the recent half-year results from JD Sports Fashion (LON:JD) highlighted that not all retailers are in the doldrums. The business reported a 47% rise in revenue, while its EBITDA increased by 37% when compared to the same period of the previous year.

With an ambitious store opening strategy, the potential impact of recent acquisitions and a focus on efficiency, the stock could offer investment potential within an unpopular market sector.

Expansion plans

During the first half of the year, JD Sports Fashion increased the size of its international store estate. In mainland Europe, it opened a net new 23 stores, and expects to open a similar number in the second half of the year. It also plans to open 15 net new stores across the Asia Pacific region this year, while it is aiming to further increase its presence in the US.

Not only does international expansion reduce the company’s reliance on the UK, it provides it with access to strong growth rates in other regions. With its multichannel offering providing a competitive advantage versus rivals, its business model could prove to be highly successful on a global basis.

An improving business

JD Sports Fashion’s acquisition of Footasylum earlier this year provides it with a range of own-label brands that offer greater differentiation and improved margins versus its rivals. Although the deal is being reviewed by the Competition and Markets Authority, it offers a slightly different consumer demographic to JD Sports Fashion’s core customer base. This could provide it with cross-selling opportunities.


The company’s ongoing investment in automation equipment at its primary warehouse may improve the efficiency of its supply chain and reduce costs. This could further enhance the customer experience at a time when many of its sector peers are struggling to keep pace with technological change.

Indeed, a number of retailers have underinvested in their supply chains and digital offerings over recent years, which has led to them experiencing stagnant growth at a time when online sales are making up an increasing proportion of total retail sales.

Investment potential

With the company forecast to post a rise in EPS of 12% in the current year, its price-earnings (P/E) ratio of 24.9 suggests that it may offer fair value for money.

Although many of its sector peers trade on significantly lower valuations, they are likely to lack the long-term earnings growth potential offered by JD Sports Fashion. In addition, they may be unable to provide international growth prospects that reduces their reliance on UK consumers during an uncertain period for the wider economy.

Therefore, JD Sports Fashion appears to offer long-term investment appeal. Its growth strategy is set to enhance its financial performance, which could translate into a higher share price.

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