The Covid-19 pandemic created a swathe of new trends, one of which was the rise of athleisure. As employees got used to working from home, comfort became paramount. No longer having to don office attire, tracksuit bottoms and comfortable jumpers became a necessity for many and the demand for athleisure products exploded, with JD Sports Fashion (LSE: JD) one of the stock market’s biggest winners.
JD Sports is a British success story and having recently cracked the US markets, long-term earnings look set to continue their upward trend. Profits for 2021 are expected to top £550m, a record for the company. At the centre of JD’s strategy are strong partnerships with internationally recognised brands such as Nike, adidas, Puma and The North Face. Sales are not only delivered through their physical stores but through a market-leading ecommerce platform, which coincidentally helped sales boom through the Covid-19 induced lockdowns. The bumper sales sent JD’s share price to £12.26, up 49% over one year, the FTSE 100 index by contrast has risen by 18% (dividends not included). However, if you had held the shares over the last five years, you would have seen a 255% rise in your holding as opposed to a meagre 8.5% from the FTSE 100 (again, dividends not included).
Some investors may believe that the growth story has now been priced into the shares and any further share price appreciation may be muted. I personally do not think this is the case. As an investor who seeks out companies to buy and hold for the long term, I am always looking for innovative companies, with experienced management teams and strong financials. In the case of JD Sports, I believe I have all three. Peter Cowgill, the executive chairman, has been leading the company since 2004. During his tenure he has delivered shareholder returns of 15,000%! An eyewatering return, but also a demonstration of how buying and holding the right shares really can create extraordinary wealth. In a show of confidence, Cowgill bought an additional 50,000 shares in July, in a transaction costing the chairman £430,000.
JD Sports is not without its issues. In a recent judgement by the competition and markets authority the company was ordered to sell Footasylum, which it acquired in 2019 for £90m, due to worries that consumers would have to pay more for less choice. Supply chain issues also remain a headwind, coupled with complications arising from the loss of tariff-free trade with the European Union.
In the case of JD Sports I believe that if I buy shares I will be rewarded over the longer term. It is important to note, however, that when investing for the long term I am always wary of putting all my eggs into one basket. I therefore spread my funds and invest in different sectors and geographies. I remain resolute in my belief that diversification is key to building wealth over the longer term.
