Sunny weather and World Cup fever is putting a spring in the consumer’s step making now a canny time to invest in key beneficiary JD Sports Fashion (JD.).

The internationally expanding multi-channel structural growth winner is riding the athleisure boom among youthful gym-goers and fashion-conscious consumers and will have seen strong sales of England and other replica shirts.

Expansion of the JD brand across Europe and Asia Pacific continues apace, while the £396m acquisition of US footwear seller Finish Line can transform the trainers-to-gym kit seller from a regional star turn into a global force.

Remaining at the top of its buy list, broker Peel Hunt upgraded its price target from 525p to 550p following JD Sports’ Capital Markets Day at Old Trafford football ground, where the FTSE 250-listed retailer reportedly ‘successfully showcased its management bench strength’, allaying ‘key man risk’ concerns relating to any overreliance on executive chairman Peter Cowgill, as well as its ‘intensity of processes and the closeness of its relationships with Nike and adidas.’

Symbiotic relationships with the latter represent a key competitive advantage, particularly following the Finish Line takeover, which boosts JD’s growth prospects in the world’s biggest athleisure market.

UPSIDE STATESIDE

Historically, the US has proved a graveyard for UK-based retailers, but Finish Line deal excites nonetheless given the global scale it brings to JD Sports.

Indeed, the market may be underestimating JD Sports’ increased importance to Nike and adidas and the upside potential from the deal, so long as management is able to reinvigorate Finish Line’s recent under-performance.

While Nike and adidas are increasing direct-to-consumer sales and culling all but the best retailers, Peel Hunt points out they realise ‘it’s a multi-brand offer that really gets the customer warmed up and there will always be a role for retailers like JD (but not for undifferentiated, single-channel fascia).

The increased scale that the US deal brings will doubtless embed these global links further and could, long term, bring gross margin benefits.’ Crucially, Nike regularly mentions JD as a key retail partner on its results calls, adidas has suggested JD is the ‘best format in Europe’ and both brands are supportive of the Finish Line deal.

Given the global scale Finish Line brings to JD Sports, also making positive progress with its Outdoor division, market estimates may yet prove conservative.

Based on Peel Hunt’s January 2020 estimate, a prospective price to earnings ratio of 15.1 times looks undemanding given the global growth potential and progressive dividend on offer. (JC)

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