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JD Sports
“A big crowd outside one of JD Sports’ London stores yesterday illustrates how consumers are eager to get their kicks from having the latest trainers,” says Russ Mould, Investment Director at AJ Bell.
“For every person who thinks they are only smelly, functional items, there is someone else who sees dollar signs and has a desire to collect footwear with the hope of selling them to someone else at a higher price.
“JD Sports’ results are impressive given it has suffered periods when stores were closed, and it is equally encouraging that its shops were among the more popular destinations as soon as the latest lockdown restrictions were eased.
“There is more to its appeal than selling collectable footwear. The broader athleisure scene was given a boost during the pandemic as lots of people took up running to exercise. Individuals were also able to wear more relaxed clothing if they were working from home rather than the office.
“These were sales catalysts for JD Sports, so too were people shopping online out of boredom as well as those buying shoes and sports clothes so they can take pictures for their social media feeds, showing off to their mates.
“As a business, JD Sports is becoming increasingly international. The US is expected to be a major contributor to earnings in the coming years and the company is making progress expanding across Europe.
“Online sales have helped to offset weakness from temporary shop closures and unsurprisingly success with the digital channel has put pressure on its warehousing capacity. That’s an easy fix by striking a deal with Clipper Logistics to provide related services.
“However, what’s not fixable with a quick signature is dealing with heightened competition. Various shoe manufacturers including Adidas and Nike are now selling direct to consumers online, meaning JD has new rivals on the retail side.
“There is a growing trend for product creators to skip the middleman and use the online channel to go directly to the end customer, as it could boost profit margins and enable them to better understand the consumer which could influence future product development.
“JD may therefore have to put more emphasis on its physical stores as being unmissable showrooms and lean on the appeal of trying shoes on in the store.”
Markets
“A game of tug of war on the FTSE 100 was still in play in early trading, as one team consisting of miners, financial and real estate couldn’t make any ground against the other team of energy, healthcare and consumer non-cyclicals. The result was a flat FTSE at 6,883.
“Other key markets in Europe nudged ahead slightly, so too Asia where Japan’s Nikkei 225 advanced 0.7%.
“Investors are likely to be sitting cautiously ahead of the next US earnings season which kicks off in earnest tomorrow with numbers from JPMorgan Chase and Wells Fargo, followed by Bank of America, Citigroup and PepisCo on Thursday.
“The banking sector put aside a lot of money last year in anticipation of credit losses, and there is a chance that some of these reserves haven’t been needed. The market will be hoping that these reserves are released, potentially funding share buybacks or greater dividends in the future.”
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