The sporting goods sector has been showing resilience despite inflation weighing on consumer spending habits. JD Sports, Lululemon and Anta Sports Products have all been trending upwards this year, and could continue on this trajectory if China’s economy rebounds in the second half of the year.
- JD Sports shares have been boosted by its bold double-digit growth strategy.
- JP Morgan expects a second-half rebound in China to be a catalyst for the sporting goods sector.
- The Global X Health & Wellness ETF has JD Sports, Lululemon and Anta Sports Products in its top 10 holdings.
Sporting goods stocks JD Sports [JD.L], Lululemon [LULU] and Anta Sports Products [2020.HK] are in vogue with investors right now, thanks to robust performances and ambitious growth plans.
Back in February, JD Sports announced it’s aiming for a ‘triple double’: double-digit revenue growth, operating margin and market share in key regions.
“Building on our strong existing position and attractive long-term market dynamics, we see significant growth opportunities ahead by expanding JD internationally, notably in North America and Europe,” said JD Sports CEO Régis Schultz in a statement.
Elsewhere, Lululemon exceeded expectations with its full-year results for 2022; the US apparel retailer announced last year that it was aiming to double annual revenue by 2026. By contrast, Chinese sportswear producer Anta has seen revenue growth slow.
The JD Sports share price is up 36.9% year-to-date, but down 4.4% over the past month. The Lululemon share price is up 14.7% year-to-date and up 20.6% over the past month, while Anta’s Hong Kong shares are up 7% and flat over the respective periods.
JD’s ambitious expansion plans
JD Sports’ triple double target comes as the company expects its pre-tax profit to top £1bn for the full year ending 3 February 2024.
Bumper profits will give the retailer the capital to ramp up its international expansion. The plan is to spend £500m to £600m annually over the next five years, with 50-60% to be focused on store expansion, especially overseas.
Under the plan, 250 to 350 new stores will be opened per annum. Of the 1,750 potential new stores, between 700 and 800 are likely to be in the US, reported the Financial Times.
Analyst Robin Hardy says JD Sports’ triple double plan is an “ambitious play” by the board to add value for shareholders: it’s “arguably way preferable to the main alternative of a massive share buyback and/or a steep increase in the dividend”, Hardy wrote in Investors’ Chronicle.
China’s second-half retail rebound
As inflation eats into consumer spending on discretionary items, JP Morgan analysts believe that “material gross margin pressure” will be the story of the first half of 2023. However, the second half will be about an accelerated recovery in China, elevating JD Sports, they wrote in a client note seen by Proactive Investors.
Following the banks’ review of the European sporting goods industry in late February, the analysts raised their rating for JD Sports from ‘neutral’ to ‘overweight’.
Lululemon is confident about the retail opportunities in the Chinese market. Revenue in the region grew 30% year-over-year in the fourth quarter (Q4) of 2022, and more than 50% on a three-year CAGR basis, despite Covid-19 impacting sales in December. Momentum has accelerated in Q1 2023, the company said on its Q4 2022 earning call last week.
“We have a solid foundation in the region across our brick-and-mortar and digital channels… supported by exceptional talent on which we continue to build,” commented CEO Calvin McDonald.
Despite Anta’s slowing growth rate, its 2022 revenue surpassed Nike’s [NKE] sales in the country for the first time, reported Yicai Global. The company is the first Chinese brand to lead the domestic sportswear market in over a decade.
Funds in focus: Global X Health and Wellness ETF
JD Sports, Lululemon and Anta are all in the top-10 holdings of the Global X Health & Wellness ETF [BFIT] as of 3 April. The fund is up 3.6% in the past month through 31 March and up 11.6% year-to-date.
Lululemon has been allocated 2.79% of the Global X Millennial Consumer ETF [MILN] portfolio. The fund is up 1.6% in the past month and has surged 14.3% year-to-date.
The stock also makes up 2.67% of the VanEck Retail ETF [RTH] portfolio. The fund is up 3% in the past month and up 3.8% year-to-date.
Anta is the ninth-biggest holding in the Global X MSCI Consumer Discretionary ETF [CHIQ], accounting for 3.47% of the portfolio. The fund is up 3.8% in the past month and down 0.9% year-to-date.
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