Healthy ambitions can deliver bracing profits
AGOOD picture, as we all know, is worth a thousand words, but one picture is locked in my head for weeks. It depicted the day after the latest Electric Picnic jamboree and showed the deserted venue, strewn with hundreds of tents, sleeping bags and other camping equipment, apparently dumped by the revellers.
A charitable view was that the still-functional equipment might be collected, saved and used by the homeless. Alternatively the picture showed the unfortunate modern culture of disposability, where things which once were rescued, brought home and used again next year, are now mindlessly abandoned.
Thankfully, not all people who like to experience the outdoor life (or go to rock concerts) choose to litter the countryside. Indeed, there is a growing market sector to care for them.
One of the biggest companies serving that market is the UK-based retail chain JD Sports (JDS), one of the London market’s bestperforming shares in the last decade.
JDS, which started as a single store in 1981 in Bury, near Manchester, has capitalised on the craze for sportswear and today the group has 1,300 stores in 14 countries, 25,000 employees and is valued at £3.6bn
(€4bn).
More recently it got involved in the ‘outdoor’ business and I’m sure the attendees at the Electric Picnic provided it with a useful Irish earnings boost.
It hasn’t been the happiest time in recent years for JDS and its counterparts in the retail sector in the UK. There have been all sorts of pressures on business but one strategy for survival was to hitch up to the takeover trail. JDS was happy to embrace that strategy.
In 2016 it acquired 57 UK outlets of the Sheffield-based Go Outdoors for £112m
(€126m). This is the company that sells waterproof clothing, tents, bikes and walking boots. Five years ago, JDS bought the Blacks and Millets chain, a year later it purchased a controlling interest in the Edinburghbased Tiso group and set up the Ultimate Outdoors in
2014.
The latest acquisition should boost growth and profitability.
The company’s international expansion started in earnest eight years ago, when it acquired a small sportswear French chain followed later with a number of fashion outlets in Spain and the Irish company, Champion Sports.
Today its focus is Europe, particularly after Brexit, as its 150 stores generated almost one third of the group’s sales last year. Recently it combined its Spanish and Portuguese business with Sports Zero, becoming the number two athleisure (that’s athletic sportswear to you and me) operator in Iberia. JDS will have 50pc of the merged entity.
The television station Channel 4 did a documentary last December which had less than complimentary things to say about the work practices and working conditions at the JDS facility in the north of England. The programme claimed conditions were ‘worse than prison’.
The company denied the claims and organised an independent investigation. The scandal did not seem to damage sales or profits all that much. Last year’s figures were impressive. Revenues at £2.38bn (€2.7bn) were double that of five years ago.
Pre-tax profits were a record £238m (€270m), quadruple that of 2013. Earnings per share in the same period have risen sixfold.
While the company faces challenges in the UK it is in a good space relative to its competitors. It is also well placed to drive growth and profits given the potential of its outdoor business and its international portfolio. Shares trade at £3.65, up on its yearly low of £2.92 with an earnings multiple of 18.
The company is also projecting full-year profits at the top end of its forecasts.
Some analysts are of the opinion the athleisure trend is running out of steam but this column has given up predicting fashion trends. However, it seems the trend of wearing lycra gym-wear to drive the kids to school in a 4X4 is still the fashion. So, JDS shares are worth buying.
Wearing lycra gym-wear is still the fashion
Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy any of the shares mentioned.