After last week’s profit warning from Footasylum PLC (LON:FOOT), investors would have been forgiven for wondering whether JD Sports Fashion PLC (LON:JD.) might have also been affected by similar industry headwinds.
Their minds were put at ease when JD responded with a record set of half-year numbers on Tuesday.
The ‘athleisure’ retailer, which sells trendy tops, hoodies and trainers, shrugged off any suggestion of a “more challenging” retail environment – Footasylum’s words – as pre-tax profits surged by a fifth to £121.9mln.
Revenue, boosted by a couple of recent overseas acquisitions, climbed by a third to £1.8bn.
First mover advantage
Despite selling similar clothes to the same audience, analysts reckon there a few key reasons why JD has outperformed while Footasylum has floundered. First and foremost is that JD, which is now closing in on a spot on the FTSE 100, is far bigger than its rival. Footasylum has 66 stores, whereas JD has just shy of 400 in the UK alone. So, if you’ve got £100 burning a hole in your pocket and you want some new trainers, the chances are you’re more likely to find a JD store wherever you are than a Footasylum.
JD is faring better than most in its home UK market, but even if it wasn’t, it still has a swathe of stores overseas which could bail it out.
The Finish Line business in the US, which JD bought earlier this year, contributed £4.8mln towards the group’s profit in the seven weeks since its acquisition and analysts believe that could be a "game changer" going forward.
By contrast, Footasylum’s relative handful of stores are all dependant on UK consumers, which retailers well know are becoming increasingly in where they shop given the income squeeze of late.
Small brands can be found elsewhere
How Footasylum has typically overcome the size difference is through selling smaller brands that millennials liked, such as Gym King and Kings Will Dream.
Those are brands which Footasylum has stocked for years and helped to grow, but they can now be found elsewhere on sites such as Asos.
When Footasylum is competing with JD to sell more established brands such as Nike and Adidas, there is only ever likely to be one winner.
With shoppers’ habits starting to shift towards online, bricks and mortar stores are having to work harder than ever to get people through their stores.
JD has invested heavily into the layout of its stores, with analysts commending the company for its bright, clean shops as well as the shopping experience more generally.
Footasylum hasn’t quite got it right yet. It has scaled back its plans to open new stores, a move which analysts reckon is because they realised the shops it has and the ones it has been targeting are too small.
One of AIM-listed Footasylum’s biggest problems has been the stock it has purchased, with City analysts commenting that the firm’s buyers have made the “odd misselection”.
That has left Footasylum with a lot of clothes and trainers that it can’t shift, forcing it to slash prices and in turn killing margins.
More importantly, argue the number crunchers, is that old, cheap stock filling the shop floor rather than the latest lines is unlikely to draw people in.