A recent trip to the Cheshire Oaks outlet shopping centre resulted in me unexpectedly taking a position in JD Sports Fashion (LSE:JD.), the FTSE 100 sports/fashion retailer. Buying shares was the last thing on my mind but I was persuaded by what I saw.
Of the 140 stores on-site, three had queues to get inside.
The popularity of Crocs and Birkenstock didn’t surprise me. But the large number of shoppers waiting outside both of them was partly due to the small size of their stores. However, it was the fact that people were prepared to wait to enter Nike (NYSE:NKE) — possibly the largest shop on site — that got me thinking.
God of victory
The apparent popularity of the American sportswear brand appears to buck a wider trend. In recent years, Nike’s decided to concentrate on selling through its own stores directly to the consumer (DTC) rather than via third parties, like JD Sports.
However, on 27 June, the company revealed that during the three months ended 31 May 2024, its DTC sales fell 8%. On the same day it also announced a cut in its 2025 sales forecast.
The news caused a 20% fall in its stock price. It’s now only 16% higher than when the pandemic was wreaking havoc.
Despite the queues in Cheshire, some industry experts claim that Nike has lost its way.
It appears to rely too much on its legacy brands. For example, Michael Jordan last played an NBA basketball game in 2003. Does anybody under the age of 35 really know who he is?
A better idea?
The JD Sports share price has undoubtedly been affected by Nike’s problems. It fell 5% when the American company provided its gloomy update in May. It’s now 30% lower than its 52-week high.
This isn’t surprising given that estimates suggest Nike accounts for 50%-55% of JD Sports’ revenue. But the retailer is more than just one brand.
Nike’s strategy has opened the door for some lesser-known rivals to gain market share. Castore, On Running and Hoka are the new kids on the block. JD Sports sells all three, as well as Crocs and Birkenstock which are also in vogue at the moment.
And despite its problems, my visit to Cheshire confirms that Nike’s products remain popular. By stocking these, along with established favourites like Adidas, Puma and New Balance, I think JD Sports is well positioned to cover all budgets and demographics.
In addition, I’m sure the Olympics will have boosted sales in the short term.
Some concerns
But there are risks. The company operates 3,400 stores in 38 countries which is a logistical nightmare. And these account for 75.7% of sales, so JD remains vulnerable to pure play online retailers who don’t have to pay property taxes.
In addition, its dividend is miserly which means many income investors will look elsewhere.
However, with a forward price-to-earnings ratio of 9.4 — below the FTSE 100 average — I believe now’s a good time for me to buy.
I therefore hope to capitalise on JD Sports’ strong track record in growing its earnings, both organically and through acquisition.
Source: company website / PBT = profit before tax
The company’s due to release its first-half results later this month (August). These should give me an early indication as to whether I’ve made the right decision.
The post Down 23% in 2024! I think I’ve just bagged myself a FTSE 100 bargain appeared first on The Motley Fool UK.
AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!
Buckle up because we’re about to dive headfirst into the electrifying world of AI.
Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.
If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – ‘AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!
And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?
Get your free AI stock pick
More reading
I see plenty of value in UK shares!
Here’s why I’d put £800 into the stock market now to start building wealth
Forget the ASOS share price, this retail giant looks far more appealing
5 shares that Fools have been selling
These value stocks could rise 21% to 32%
James Beard has positions in JD Sports Fashion. The Motley Fool UK has recommended Nike. 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.
