Having walked away from a potential rescue of department store Debenhams earlier this month, trainers-to-tracksuits retailer JD Sports Fashion (JD.) has decided to scale up its ambitions in the US through the $325 million acquisition of Shoe Palace, news that sent the shares up nearly 6% to 837.2p.
Sportswear purveyor JD Sports, which entered the US market in 2018 through the acquisition of Finish Line, believes its latest bolt-on deal will increase its appeal among the large Hispanic and Latino communities who form a significant proportion of the Shoe Palace customer base.
ABOUT SHOE PALACE
Based in San Jose, California, Shoe Palace was established in 1993 by the Mersho family and has 167 stores, the bulk of which trade under the Shoe Palace banner; the company generated a $52 million pre-tax profit on revenues of $435 million in the 2019 calendar year.
JD Sports has bought a predominantly West Coast retailer. More than half of Shoe Palace’s stores are located in California, although it also has a retail presence in Texas, Nevada, Arizona, Florida, Colorado, New Mexico and Hawaii and the store network is supported by a developing ecommerce platform.
CLOSER TO THE US CONSUMER
‘In a stroke it gets JD Sports, which previously acquired Finish Line along the East Coast and middle America, an opportunity to get even closer to the US consumer, particularly the Latino and Hispanic communities,’ explained Shore Capital.
The Mersho Brothers will continue to manage the Shoe Palace business, ‘although the intention is that, from next year, the JD Finish Line and Shoe Palace teams will begin to share ideas and best practices as we look to create an unrivalled proposition which connects with all relevant consumers,’ explained JD Sports.
The high street star turn’s no-nonsense executive chairman Peter Cowgill said ‘the Shoe Palace team are ambitious, have great energy and pride themselves on their consumer connection and we welcome them to the group’.
Cowgill is also ‘confident that our combined fascias will provide us with the flexibility and expertise to fulfil our mutual ambition of becoming a prime customer destination for sneakers and lifestyle apparel in the United States.’
A ‘SENSIBLE BOLT-ON’
JD Sports is one of Shore Capital’s top retail sector picks and the broker regards the Shoe Palace takeover as ‘another sensible bolt-on acquisition that will be earnings accreditive from year one. There will no doubt be synergy opportunities from better buying and central overheads, but initially the two US businesses - JD Finish Line and Shoe Palace will be run as separate business units. The proposed deal has already had pre-competition clearance, so there are no new regulatory hurdles ahead.’
For JD Sports, Shore Capital believes Shoe Palace ‘looks right up its street in core footwear and is complementary to its existing US business in terms of geography and extends its reach in terms of customers.’
