The UK is now in the second phase of lockdown easing. Soon enough, things will be even more relaxed as non-essential retailers re-open in two weeks’ time. For this reason, I think it is a good time to consider FTSE 100 retail reopening stocks now.
Tough year for retailers
Retail has been hard hit since last year by the lockdown and socially-distanced shopping when the lockdowns were lifted. Brick-and-mortar stores were already on the decline before the pandemic, and one year of online shopping has accelerated this trend.
Yet, it may be too soon to write them off. First, because consumers may want to experience in-person shopping once more. As a result, I think there can be a surge in retail footfall once the lockdown is lifted.
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And two, even without this, some retailers have taken steps to adapt to the new-normal of online purchases. These can hold them in good stead over time.
Here are two FTSE 100 reopening stocks that I think can perform once the lockdown lifts:
#1. JD Sports Fashion: return to growth
JD Sports Fashion (LSE: JD) is an example of a FTSE 100 retailer that has managed to make the most of 2020. Two developments stood out from its trading update in January. One, it reported a 5% increase in revenues for the 22 weeks to 2 January 2021 as “consumers readily switched between physical and digital channels”. Two, for the full-year ending 30 January 2021, it expected headline profit before tax to be “significantly ahead of the current market expectations”.
Besides this, it also recently made an acquisition that will expand its US footprint and also one in Poland, that will extend its reach in eastern Europe. This is in addition to its attempts to buy Footasylum last year, which is still pending.
#2. NEXT: FTSE 100 stock reaches all-time-highs
UK-focused retailer NEXT (LSE: NXT) was also able to manage the transition to online well. In its trading update in early January, it said that for the nine-weeks to 26 December 2020, “Online business compensated for almost all those lost in Retail stores”. Its overall sales were down marginally by half a percent, as its online sales increased by a whole 38%.
Investors were clearly positive on the stock, which quickly rose to all-time-highs in the days following the update. Even with some fluctuations, it has remained close to those levels.
More recently, it acquired a 25% stake in the UK-based fashion brand and retailer Reiss, which can expand its reach further.
The downside to these reopening stocks
If these reopening stocks have managed to forge ahead in a year like 2020, I have little doubt that they will continue to do so in the future. However, I am uncertain if their shares can make much more gains in the foreseeable future going by their already elevated levels.
JD Sports Fashion’s earning ratio is at 42 times. NEXT has a lower ratio of 31 times, but its financials are not in as good a shape as those of JD.
On the whole though, I think they are both good buys for me right now.
