Star quality: Rita Ora poses for JD Sports
My son is 23. His footwear of choice? Trainers, of course. He has several pairs in various styles and colours for different occasions. His mates are the same. And they are not alone.
Gone are the days when trainers meant a pair of white plimsolls, kept until they fell apart or you outgrew them – and used strictly for sport.
Today, trainers are cool. Rock stars parade in them on stage and off, company directors wear them whenever they can, and even politicians love a snazzy pair of sneakers.
The shift from sportswear to constant wear dates back decades. James Dean spawned a mini-craze for trainers when he wore them in Rebel Without a Cause in the 1950s.
But it was basketball hero Michael Jordan who can be credited with bringing sneakers into the mainstream, when he flaunted Air Jordan 1s as part of a multi-billion-dollar sponsorship deal with Nike in the 1980s.
Since then, demand for trainers has grown by leaps and bounds. Last year, almost £60 billion was spent on trainers worldwide and the market is forecast to grow by more than 5 per cent annually for at least the next four years.
So far, so good for JD Sports, the second-largest sports fashion retailer in the world, with more than 3,400 stores in 38 countries and close relationships with all the top brands including Nike, Adidas and Puma.
As recently as last September, chief executive Régis Schultz was full of confidence about the future, describing JD’s customers as ‘resilient’ and stating that profits for the year to this February would exceed £1 billion, in line with City expectations.
Last week, a very different picture emerged as Shultz was forced to admit that mild weather and intense competition had taken their toll in the run-up to Christmas and that profits would range between £915 million and £935 million – lower than last year and the year before.
Investor reaction was swift, with JD shares sliding by almost 25 per cent to £1.17 before rebounding slightly to £1.19 by close of play on Friday.
On the front foot: Michael Jordan brought trainers into the mainstream
As Jonathan Pritchard, analyst at brokers Peel Hunt, explained: ‘JD have not missed a forecast since the average analyst was in short trousers so the latest news came as a bolt from the blue.’
The fall was felt across the UK and beyond. Last year, JD Sports was the second most searched for stock in the FTSE 100 index of leading shares, with an average of more than 700,000 searches per month from existing and wannabe investors. Interest in the business spans the US too, where it has built a portfolio of more than 1,200 stores since acquiring retail chain Finish Line in 2018.
Shareholders on both sides of the Atlantic will be asking the same questions. Is this profits warning just a blip? Does it show management have taken their eye off the ball? Is this part of a broader slowdown in the so-called athleisure market – clothes and footwear for exercise and every day? Or will the business bounce back very soon?
Athleisure clothing soared in popularity during the pandemic and sales climbed more than 23 per cent in 2021 to almost £290 billion worldwide, according to Global Data. By last year, that had slipped to 4.6 per cent. A recovery is expected this year and beyond, but those heady days of 2021 are long gone.
Trainers should be more resilient however, and they account for two-thirds of sales at JD Sports. As GlobalData’s Louise Deglise-Favre explains: ‘People were at home for two years wearing leggings. Now they are out and about, wearing other stuff. But trainers have cemented themselves as a cool staple. So the slowdown will be less marked.’
JD is also winning market share, particularly in the US, Europe and Asia. Nonetheless, the jury is out. Last month, key partner Nike slashed revenue forecasts and announced sweeping cost cuts, blaming increased caution from consumers as cost of living pressures bite. Those pressures should abate as inflation eases and interest rates fall, but many shoppers will continue to feel the pinch – even those in the 16-24 age group.
There is little doubt that this is a testing time for Shultz, appointed in 2022 after long-time boss Peter Cowgill quit with immediate effect a few months earlier. Cowgill led JD’s international expansion, built the online business, acquired a string of rivals and took the group into the FTSE 100 in 2019. But he left after several governance issues. His are big shoes – preferably trainers – to fill.
