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 atÌýhome" trend (avg -1% FX-neutral sales growth for listed peers in 2020e), we expect theÌýsportswear industry to emerge even stronger from the pandemic. We don't believe thatÌýthe positive trends will fade with the reopening of the economies due to the resumptionÌýof public sporting events and the already well managed level of inventories in the sector.ÌýWe forecast an average annual +8% FX-neutral sales growth to 2025e driven by theÌýcontinuation of secular growth trends, as well as further adjustments to the companies'Ìýbusiness 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 paÌý(2019-2025e). However, we expect continued market share gains by the top players asÌýwe forecast a +8% FX-neutral sales growth pa to 2025e for the listed sportswear brandsÌýdriven by the continuation of secular growth trends, as well as further adjustments toÌýthe companies' business models in the post-COVID-19 world with a significantly faster shiftÌýto ecommerce. Although we expect industry growth to remain majority volume-driven,Ìýincreased premiumisation, especially of the footwear category, offers in our viewÌýincremental 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 accretiveÌýecommerce channel in the post-pandemic world means that sector is likely to see aÌýsustainable step-up in profitability.Ìý

#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 generationÌýgiven its asset light business model. This, combined with our expectation of an increasedÌýaverage level of profitability for the sportswear names, means the sector is likely to seeÌýan even faster accumulation of cash on its balance sheets.