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

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

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

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