In among the tales of doom and gloom on Britain’s high streets, JD has given retail watchers plenty to cheer in recent years.
The sportswear retailer has capitalised on the explosion of the athleisure trend in Britain, taking sales and profits to record levels under the guidance of boss Peter Cowgill.
Yet domestic dominance has only proved part of JD’s grand plan.
Much like executive chairman Cowgill’s beloved Manchester United, JD is amassing a strong squad of international players as it bids to become the world’s best.
In March 2016, JD’s purchase of Aktiesport and Perry Sport in the Netherlands was cleared by the Dutch competition watchdog.
A year later, it revealed plans to combine its business in Portugal and Spain with the Sonae-owned Sport Zone chain to cement its foothold in Iberia.
“The retailer’s shareholders and competitors should not be fooled by the name of its most recent acquisition. JD’s race to achieve global dominance is some distance from reaching the finish line”
And last September, JD launched a joint venture with South Korean footwear retailer Hot-T, investing £5.5m in a 15% stake in the business, with the option of acquiring a further 35% share.
But it is this morning’s £396m acquisition of 556-store US chain Finish Line that has planted the most significant flag in the ground, and caused a stir in the City.
To provide some context around the scale of its latest deal, JD raked in £2.38bn in sales during its 2016/17 financial year, which it converted into a pre-tax profit of £238.4m.
That figure is expected to hit £300m in April, when the retailer reveals its figures for the year ending February 3.
At the half-year stage, covering the 26 weeks to July 29, JD’s sales jumped 44% to £1.36bn – almost identical to Finish Line’s full-year revenues.
Playing the field
Despite its international plays to-date, JD’s UK sales still account for around 70% of revenues, with about 28% coming from Europe and just 2% from the rest of the world.
Following the acquisition of Finish Line, more than half of JD’s revenues will now come from outside the UK.
And, notably, the deal will enhance its relationship with sportswear giants including Nike, whose products currently account for almost three-quarters of Finish Line’s sales.
JD’s share price increased 3.4% in the first hour of trading on Monday morning as the City celebrated its latest tactical buy, and the stock remained 1.1% up at 361.1p by midday.
But the retailer’s shareholders and competitors should not be fooled by the name of its most recent acquisition. JD’s race to achieve global dominance is some distance from reaching the finish line.
Despite its presence in Ireland, France, Germany, Italy, the Netherlands, Spain, Denmark, Portugal, Malaysia and Australia, there is plenty more headroom overseas for JD to expand into.
“For JD to be considered a truly global player in this market, a presence in the US is a must”
House broker Peel Hunt’s target price of 500p encapsulates such growth potential. Not all investors will be happy, though, that JD is pursuing that growth by bidding to crack America.
But for JD to be considered a truly global player in this market, a presence in the US is a must.
As Peel Hunt’s Jonathan Pritchard says: “JD aspires to be a member of the global elite of sports retailers but it’s hard to do that without bon the ground in the US.
“It would be almost impossible to build a major presence there organically… so, an acquisition was always going to be the best way in. Finish Line fits the bill nicely, at a sensible price for a material presence in the market via some assets that need a shot in the arm.”
The pitch in the US is likely to prove a tougher one for JD to play on away from home.
But given its impressive record on its travels, it would take a brave person to bet against JD emulating Cowgill’s United heroes and chalking up another victory.