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British retail is in turmoil — but the City still loves JD Sports

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Hailey Baldwin partners with adidas and JD Sports to create Streets of EQT, a fashion show celebrating street style at The Old Truman Brewery on September 15, 2017 in London, England. Photo: Tristan Fewings/Getty Images for adidas

British stocks are out of favour with global investors and retail in particular is being shunned. Footfall on High Streets is falling, consumer confidence is limp, and even online giants like Asos (ASC.L) are feeling the squeeze.

Against this backdrop, it’s surprising that one of the most favoured stocks in the City is a retailer: JD Sports (JD.L).

The brand’s kind of on fire,” Greg Lawless, a retail analyst with Shore Capital, told Yahoo Finance UK. “They’ve hit a sweet spot.”

Lawless covers JD and rates the stock a buy. He’s not alone. Seven analysts track the stock and all rate it a buy or strong buy, according to Yahoo Finance data.

JD has benefited from the global trend for “athleisure” — sportswear as fashion. Think women wearing yoga leggings on the weekend or “millennials who want the latest trainers to go to the pub with on a Friday night,” Lawless said.

JD has ridden the athleisure trend very well,” he said. “If you think back five years ago, their stores were very male, testosterone filled places. What they’ve actually been able to do is to adapt their format and make it attractive for females to go in and shop there as well.”

The athleisure market is estimated to be worth around $10bn in the US alone and is growing fast. Its growth in part helped explain how JD Sports bucked the trend of a weak Christmas among retailers by reporting a 5% rise in sales.

Lucy Mecklenburgh makes an Instore appearance at JD Sports on July 22, 2015 in London, England. Photo: Tim P. Whitby/Getty Images

JD is not not just a favourite with analysts but investors too. Jean Roche, who runs Schroders Pan-European Small and Mid Cap fund, told journalists at a lunch event in London before Christmas that JD was one of her preferred UK stocks.

Other bluechip names on JD Sport’s share register include Fidelity, Standard Life, and JPMorgan Asset Management.

JD Sports continues to be a stock that we like, combining an attractive valuation with excellent operational execution,” James Illsley, who co-manages JPMorgan’s UK Equity Core Fund, told Yahoo Finance UK.

Roche said JD’s same-day delivery capabilities and close relationship with Nike (NKE) and Adidas (ADS.F) were key to her investment case.

“Sports Direct get the black football boots, but the one that Lionel Messi wears is either in the Adidas store or JD Sports,” Lawless said.

40% of JD’s fashion products are exclusive to the chain, according to Credit Suisse. This exclusivity helps set the chain apart in a crowded market and underlines just how much Nike and Adidas trust JD.

JD sponsors British heavyweight boxer Anthony Joshua. Photo: Richard Heathcote/Getty Images

JD Sport’s share price has grown from around 40p at the start of 2013 to around 450p today. It rallied 30% in January alone and now has a market capitalisation of £4.3bn. It is close to breaking into the FTSE 100.

It might be tempting to call the top for the company after such a spectacular run. But analysts remain bullish and there is currently no short interest in the stock.

JD acquired US retailer Finish Line in a $560m deal last March and Lawless said this transaction is “transformational.”

It’s obviously the biggest sports retailing market in the globe and it enhances their revenues by 40% at a stroke,” he said. He expects the full benefits to take at least 3 years to filter through fully.

He and his colleague Clive Black said in a note last month that JD “remains a tightly managed company with good cash generation, international expansion, and good growth prospects” — a rare beast in UK retail right now.