Sportswear industry to emerge stronger from the pandemic

We have a positive view on the European sportswear sector. Despite being seen as a relative winner of the past 12 months due to the "stay at听home" trend (avg -1% FX-neutral sales growth for listed peers in 2020e), we expect the听sportswear industry to emerge even stronger from the pandemic. We don't believe that听the positive trends will fade with the reopening of the economies due to the resumption听of public sporting events and the already well managed level of inventories in the sector.听We forecast an average annual +8% FX-neutral sales growth to 2025e driven by the听continuation of secular growth trends, as well as further adjustments to the companies'听business models, which should drive further margin upside.

#1. Secular trends continue to support attractive growth profile

The global sportswear sector is expected to grow at a 5% FX-neutral sales growth pa听(2019-2025e). However, we expect continued market share gains by the top players as听we forecast a +8% FX-neutral sales growth pa to 2025e for the listed sportswear brands听driven by the continuation of secular growth trends, as well as further adjustments to听the companies' business models in the post-COVID-19 world with a significantly faster shift听to ecommerce. Although we expect industry growth to remain majority volume-driven,听increased premiumisation, especially of the footwear category, offers in our view听incremental price/mix opportunities.

#2. Greater depository transfer check shift by a few, to benefit the rest and the industry's margins

The adjustment in companies' business models with a faster shift to the margin accretive听ecommerce channel in the post-pandemic world means that sector is likely to see a听sustainable step-up in profitability.听

#3. High cash generation & limited scope for M&A to drive shareholder returns

The sportswear industry continues to be characterised by a high level of cash generation听given its asset light business model. This, combined with our expectation of an increased听average level of profitability for the sportswear names, means the sector is likely to see听an even faster accumulation of cash on its balance sheets.