Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
JD Sports to buy beaten-up US retailer part owned by Sports Direct
Retailer JD Sports Fashion (JD.) is stepping into the vast US sportswear market through the near-£400m acquisition of NASDAQ-traded footwear seller Finish Line.
One of the biggest premium multi-branded athletic, clothing and accessories retailers across the pond, Finish Line could boost JD’s growth prospects in the world’s biggest athleisure market.
That assumes JD can help revive the business as Finish Line’s profits have been severely hit over the past few years.
Finish Line saw its pre-tax profit fall from $120.4m in the year to February 2015 to $30.6m in the following year. The company suffered higher operating costs and $48.7m impairment charges and store closure costs.
A programme to replace its warehouse and order management system also caused temporary problems as it wasn’t able to place new products in its stores and distribution centre. Finish Line had to rely on aged product and clearance stock which sold at a lower margin than new product.
Last September Finish Line significantly downgraded its earnings guidance amid difficult trading conditions.
Its shares had fallen from $28.23 in August 2015 to a low of $9.90 last week before JD’s takeover announcement.
Finish Line trades from 556 physical outlets across 44 US states and Puerto Rico. It boasts an established online business and is also the exclusive retailer of athletic shoes for Macy’s.
Theoretically the acquisition could increase JD’s strategic importance to major international brand partners including Nike and Adidas.
We’re fans of JD Sports’ management team and the strategic rationale for the deal looks compelling if somewhat opportunistic. However, executive chairman Peter Cowgill’s description of the acquisition as being ‘transformational for the business’ may ring alarm bells.
Major acquisitions can destroy value and the US has proved a graveyard for UK retailers in periods past, most famously Tesco (TSCO),which exited America by selling its loss-making Fresh & Easy chain to Yucaipa in 2013.
Shares in JD initially traded up on the acquisition news but the stock was trading 3.2% lower by the afternoon of the announcement as investors had a chance to familiarise themselves with Finish Line.
Rival UK retailer Sports Direct (SPD) last summer took an 18.85% stake in Finish Line, saying the investment may help it build a relationship and develop a commercial partnership.
Sports Direct has investments in numerous UK and US retailers and has a tendency to buy into companies that are struggling. So far its interests seem to have been focused on financial gain on the equity rather than any proper collaboration. (JC)