Why this retailer is looking like a cheap FTSE 100 stock right now

·3-min read
Young black female footballer training on stadium pitch
Image source: Getty Images

FTSE 100 stock JD Sports Fashion (LSE:JD) is a retail staple in UK high streets. The company has a global presence with 3,400 stores worldwide. In recent years, acquisitions and new store openings in Europe, Asia and the United States have further strengthened the international footprint of JD Sports.

In February, CEO Régis Schultz set out a growth strategy for the next five years that focuses on continued expansion. Schultz took the helm at JD Sports in September 2022 following the departure of former CEO Peter Cowgill who left under a cloud in May 2022 following price-fixing allegations, after 18 years with JD Sports.

New direction

Laying out the new direction, Schultz stated: “Today marks a new distinct chapter in the growth story of JD as we set our plans to become the leading global sports-fashion powerhouse”.

Referring to long-term market dynamics, Schultz outlined a predicted capital expenditure of £500m to £600m. JD Sports expects to allocate 50% to 60% of its spend to expansion in underpenetrated markets, and to open 250 to 350 stores over the next five years. Double-digit revenue growth and double-digit market share in key regions is a key target.

Bucking the trend

Whilst the JD Sports strategy may sound bold, the company has been bucking the trend in terms of outperforming rivals. At ASOS, profits dropped 89% during the 2021-2022 period to £22m. That’s down from £193.6m the previous year when Covid-19 lockdowns boosted online sales.

JD Sports, however, reported an increase in profits for the 2012-2022 period. Profit before tax came in at £364m, up from £41.5m the previous year. For the year ending 3 February 2024, profits are expected to exceed £1bn after strong Christmas trading.

Group Operations Director at JD Sports, Sherilyn Patterson, says the company’s target demographic is 16- to 24-year-olds. Robust sales are attributed to customers having “strong buying power” and more expendable income with most still living at home where they are less exposed to the cost-of-living crisis.

There is a note of caution, however, with such bold expansion plans that are reliant on international expansion hot on the heels of a global pandemic. The past three years have shown that situations can change rapidly.

JD Sports has a strong management team with much retail experience. Yet could JD miss the steady guidance of the previous CEO who was fundamental to the success of the company? It would appear, however, JD Sports is in safe hands, with its new CEO having had significant success at the French retailers Darty and Monoprix, driving growth and sustainability initiatives. Sustainability is an area where JD Sports performs well and will continue to be scrutinised by investors.

Overall, JD Sports is a well-established and successful sportswear retailer with a global presence and a strong financial performance that seems set to continue. I am strongly considering adding JD Sports to my portfolio as a long-term investment.

The post Why this retailer is looking like a cheap FTSE 100 stock right now appeared first on The Motley Fool UK.

More reading

Gilly West does not have a position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2023