Star turn retailer JD Sports Fashion (JD.) is expanding into the vast US sportswear market by buying footwear seller The Finish Line for roughly $558m (£396m).
NASDAQ-listed Finish Line, one of the biggest premium multi-branded athletic, clothing and accessories retailers across the pond, should transform JD Sports’ growth prospects in the world’s biggest athleisure market, boosting its buying power and clout with the global sportswear brands.
STEPPING INTO THE US
Both sets of shareholders will need to approve the deal, but Finish Line certainly excites. It will expand JD Sports’ presence in the US, the largest sportswear market in the world, and provide the next step in further increasing its global scale.
One of the UK high street’s rare Christmas winners, JD has recently acquired Sport Zone in Spain and Portugal, invested in a joint venture in South Korea and opened organically in Singapore and Australia.
The Indianapolis-headquartered target trades from 556 Finish Line branded outlets across 44 US states and Puerto Rico. It boasts an established online business and sells brands including Nike, Adidas, Under Armour, Brand Jordan and Puma.
Finish Line is also the exclusive retailer of athletic shoes, both in-store and online for US retailer Macy’s, operating 375 branded and 188 unbranded concessions within Macy’s stores.
For JD Sports, whose shares jump 3.3% to 367.5p on the news, the $13.50 per share takeover not only brings ‘the benefit of a significant physical and online retail presence’, it also increases the retailer’s strategic importance to its major international brand partners.
With a population north of 300m people, the US is the country where sneaker culture was created and the athleisure trend originated.
Uncle Sam is also home to Nike, a key supplier to JD Sports and Finish Line alike.
Finish Line, whose management team led by CEO Sam Sato is staying on once the company delists from the NASDAQ stock exchange, made $54m (£38m) pre-tax profit and $1.84bn (£1.3bn) sales in the year to 25 February 2018.
COWGILL’S SOLD
Peter Cowgill, JD Sports’ plain speaking executive chairman, says his charge has long identified and researched the US market as a key expansion target and ‘this is a landmark day for JD and will be transformational for the business’.
Cowgill says Finish Line has many similarities to JD with a strong bricks and mortar offering complemented by an advanced and well-invested digital platform.
‘We are looking forward to working with Finish Line’s experienced management team to bring best in class retail theatre to the US. Our combined extensive knowledge of the retail market and our product and marketing relationships with global brand partners will benefit our customers, in turn supporting the continued future growth of JD.’
Shore Capital analyst Clive Black is similarly enthused, writing: ‘JD Sports continues with its international strategy and this transaction will scale that up significantly with enhanced revenues and earnings from a new US division. This looks a sizable transaction but highlights the global ambitions of the management team and we reiterate our buy rating.’
TRANSFORMATIONAL WARNING
Russ Mould, investment director at AJ Bell, says JD’s description of the deal being ‘transformational’ isn’t necessarily a good thing.
‘Many big strategic deals often end up being transformational in the worst possible sense,’ he comments. ‘JD has some credit in the bank though.
‘Despite operating in an extremely competitive and structurally challenged retail sector its operational and financial performance has, for the most part, been hugely impressive.
‘Investors will be hoping the complications of this US deal do nothing to threaten that track record, assuming both sets of shareholders approve the transaction.’
