JD Sports Looking To Test JD Stores In The U.S.

JD Sports plans to open about 30 JD Sports locations in the U.S. should the company succeed in acquiring Finish Line Inc., the U.K. retailer’s officials told investors while reporting strong 2017 results.

According to the Telegraph, Peter Cowgill, executive chairman of JD Sports, reiterated past comments when the deal was first announced on March 26 that the U.S. was the largest athleisure market in the world and the acquisition provides a “significant opportunity for JD to expand its presence on a global basis.”

Still, he added the JD Sports would be “cautious” in the roll-out of its flagship brand in the U.S., initially changing the banners of about 30 Finish Line stores to JD Sports to trial the model.

JD Sports, seen as a premier sneaker retailer in the U.K., agreed to buy Finish Line for $588 million, or $13.50 a share, in deal that would mark the company’s entry into U.S. retailing.

The transaction has been approved by Finish Line’s board and is expected to close by June 2018, subject to approval by both shareholder bases. JD has 1,300 stores in the U.K. and Europe across a number of banners with annual sales of $4.5 billion. Finish Line had revenues of $1.84 billion in its fiscal year ended March 3. At the end of the company’s third quarter, the company operated 944 total stores, with 566 stand-alone and 378 shop-in-shops inside Macy’s.

For JD Sports, the acquisition would build on some success the company has had expanding out of the company’s home U.K. market in recent years, gaining a presence in France, Spain and South Korea.

In the company’s report for the year ended February 3, Cowgill briefly commented on the Finish Line deal. “We believe this acquisition will be transformational for the business in terms of its international relevance with both consumers and the principal brands.”

Overall, revenues in the year at JD Sports rose 32.9 percent to £3.16 billion ($4.5 bn). Same-store sales were up 3 percent at its store and grew 7 percent including online sales. Online sales expanded 30 percent in 2017.

Pre-tax profits improved 23.5 percent to £294 million. Excluding extraordinary items, earnings grew 25.6 percent to $307.4 million. Both profits and earnings exceeded analyst targets.

Cowgill said, “After delivering a headline profit of £100 million for the first time in the year to January 2015, the headline profit has increased by more than £200 million over the subsequent three years, a rise in excess of 200 percent. This sustained growth could not have been achieved without a relentless and ongoing focus on a number of key principles which ensure we remain the undisputed consumer destination of choice for sport lifestyle footwear and apparel.”

In the Sports Fashion segment, operating profits (before exceptional items) increased by 22.4 percent to £300.0 million. Said Cowgill, “After double digit like-for-like growth in our Sports Fashion stores in each of the three preceding years and with a relative lack of new footwear models from the principal brands in the second half of the year, we are pleased with the further like-for-like growth in stores in the year of 3 percent across our combined fascias, with a particularly strong performance from the JD fascia in Europe.”

Online growth expanded in excess of 30 percent at the Sports Fashion segment on a pan-European basis.

“The company’s core U.K. and Ireland Sports Fashion banners continue to provide the foundation for our success,” he added, “whilst acknowledging the increased distribution of aspirational athletic inspired footwear and apparel in these markets, we remain committed to giving consumers a digitally integrated, multi-brand experience where the product offering retains a high degree of exclusivity. In recent years we have enhanced the differentiation in our proposition and elevated the brand offer with the highest standards of visual merchandising, retail theatre and digital integration.”

Outside the U.K. and Ireland, the Sports Fashion segment saw a net increase of 65 stores last year, of which 56 were in Europe. The company’s first stores were recently opened in Finland; Australia and Gangnam, Seoul. He said the company is on track to open approximately one new store per week on average in mainland Europe.

“We are very encouraged by the progress that we are making internationally and we continue to look for further opportunities to bring our dynamic multichannel proposition to new markets around the world with the support of our key brands.”

Among non-JD stores, Sprinter, the largest such banner, was negatively impacted by one-off charges of £4.1 million associated with the ongoing relocation of the logistics operations to a new and more appropriately-sized warehouse in Alicante. The acquisition of the Sport Zone business in Iberia and the Canary Islands extended the reach of Sprinter in Spain, although it will “lead to a drag on profitability in the short term” until synergies are realized.

Chausport in France, with a smaller retail space and greater footwear bias than the flagship JD chain, had a strong first half but a more difficult second half, reflecting the lack of new footwear styles in the marketplace.

Sports Unlimited Retail in the Netherlands is in the process of reducing the Perry Sport and Aktiesport store banners to a sustainable size and clearing stock tied to the company’s acquisition in 2016, and those moves impacted the chain’s financial results last year.

In the company’s Outdoor segment, operating profit before exceptional items dropped to £8.8 million from £1.2 million the year before. The decline reflected an amortization charge of £3.7 million, tied to the consolidation of the acquisition of Go Outdoors last year. Outdoor banners also include Blacks, Millets, Ultimate Outdoors and Tiso.

“We continue to plan for further integration of the enlarged Outdoor business,” he added. “We believe that the availability of product in the Go Outdoors stores can be enhanced by more regular deliveries of stock from central warehousing, leveraging off the existing JD logistics and transport infrastructure. It is our current intention to transfer the Go Outdoors stock into the Group’s principal warehouse at Kingsway sometime during the next year.”

Looking ahead, JD Sports said the significantly later Easter this year precludes making a “detailed update” on year-to-date sales at this time. The company added, “However, at this early stage, we are satisfied with progress and remain confident about the prospects for the current financial year. “

JD Sports will next report on September 11.

Retail analyst Jonathan Pritchard at Peel Hunt raised his earnings estimate for the coming year. He wrote in a note, ” At a tough time for the industry and the consumer, that’s a stand-out effort, and it is clear that the JD offer is exactly what the customers want, be that physically or online. Coming as it does at a moment when the big brands are thinking further about consolidating their retailer lists, such form is invaluable and we see the move to the U.S. as another logical step towards JD becoming a global brand and thus a key partner of the big suppliers. These are revolutionary times in the industry, and it’s hard to find a sports retailer playing its cards as well as JD.”

Photo courtesy JD Sports