JD Sports’ Aggressive M&A Moves Are Paying Off in the US + More Deals Could Be on the Way

Armed with new acquisitions and a firmer foothold in the United States, JD Sports Fashion Plc expects a banner year for profits.

The British retailer, which reported 2020 fiscal year earnings and sales today, predicted that profits in 2021 could exceed pre-pandemic levels. According to the company, pre-tax profits before exceptional items for the full year ended January 2022 are expected to be in the range of 475 million pounds to 500 million pounds (or about $652 million to $687 million at current exchange), compared with a previous forecast of 440 million pounds to 450 million pounds.

In its financial report, JD Sports hailed a strong performance in the U.S., where it has worked in recent months to expand its operations. The company snapped up San Jose, Calif.-based Shoe Palace Corp. for $325 million in mid-December and less than three months later announced that it would acquire Baltimore-based DTLR Villa LLC in a $495 million deal.

According to analysts, the acquisitions complement JD Sports’ burgeoning U.S. portfolio: Shoe Palace has a stronger foothold with Black and Latinx shoppers on the West Coast, where Finish Line has struggled to make inroads. Separately, DTLR is mostly centered in the country’s northeast region, with 247 stores across 19 states — predominantly street locations focused on urban consumers.

What’s more, JD Sports has been considering an equity capital raise as it seeks to finance new investments, suggesting that more deals could follow in the year ahead. In January, the retailer confirmed that it was “exploring additional funding options, with a view to increasing its flexibility to invest in future strategic opportunities.” (It shared that a non-preemptive equity placing was among those funding options.)

As for its own businesses, JD Sports reported that Finish Line and its namesake brand have had an “exceptional” year. It suggested that its America-based chains benefited “significantly” from May to July due to fiscal stimulus, while less promotional activity through the rest of the year has boosted gross margins in the second half. The company also shared plans to convert up to 50 more Finish Line stores to JD locations this year.

“The United States is widely regarded as the most mature market in the world for online trading, with our digital team at Finish Line highly regarded within the industry,” the company added in a statement. “As such, it is not surprising that, of all our global businesses, it was Finish Line and JD in the United States that saw the greatest retention rate through the temporary closure period in the first half.”

For the year ended Jan. 30, JD Sports logged revenues that rose 1% to 6.16 billion pounds, or $8.46 billion, while pretax profits declined 7% to 324 million pounds, or $445 million. The retailer announced that it would reinstate shareholder payouts with a dividend of 1.44 pence per share, given the “significant contribution to profitability from the group’s international operations, particularly those in the United States.”

In a statement, executive chairman Peter Cowgill said, “A number of positive themes have been increasingly apparent through the year which gives us confidence that, as we begin to emerge from the worst of the disruption, JD is at the pinnacle of the global sports fashion industry … Whilst we must recognize the substantial level of temporary store closures to date and ongoing, we remain confident that we are well placed to benefit from the opportunities that prevail.”

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