With its recent takeover of DTLR, JD Sports Fashion Plc is doubling down on its expansion in the United States — and market watchers are bullish on the British sportswear conglomerate’s growth prospects in the year ahead.
Today, JD Sports announced its acquisition of the Baltimore-based DTLR Villa LLC in a deal worth about $495 million. The purchase, which is expected to close in the first quarter, marks the latest in an acquisition spree that dates back nearly three years, when JD bought Finish Line Inc. for $558 million. Last month, JD Sports also snapped up San Jose, Calif.-based Shoe Palace Corp. in a $325 million transaction.
According to analysts, the DTLR and Shoe Palace buys 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.
“Just like the Shoe Palace acquisition, DTLR gives JD access to a geography where Finish Line was under-penetrated,” said Matt Powell, senior industry advisor of sports at The NPD Group. “DLTR also allows JD to have a differentiated portfolio — much like they operate in Europe; JD operates many banners in Europe to address different demographics, [and] they now can do the same thing in the U.S.”
Analysts added that the expansion comes at a pivotal time for JD Sports — one of few United Kingdom-based retailers with the potential to scale its offerings globally as the pandemic continues to drive athleisure sales. In September, the company reinstated its guidance for the full year, predicting 2020 pretax profits of at least 265 million pounds (or $345.5 million), even as it reported a decline in first-half income and revenues due to COVID-19-induced store closures.
At the time, JD Sports noted that a post-reopening boost in revenues — driven by a combination of pent-up demand and promotional activity — was “generally short-lived” as foot traffic at brick-and-mortar units were “significantly weaker than historic levels” in all of the retailer’s geographies, particularly across Europe. But in the U.S., the company — citing “enhanced consumer demand” — saw an “excellent performance” in its namesake and Finish Line banners.
“We think this deal is strategically sensible, increasing JD Sports’ U.S. footprint,” BofA Global Research analyst David Holmes added in a note sent to FN. “Post-DTLR and -Shoe Palace, more than a third of group revenues would come from U.S. [during the 2020 fiscal year 2020].”
What’s more, the Greater Manchester-based chain attributed its reduced profitability for the half year to additional costs associated with its e-commerce business as consumers increasingly turn to digital platforms amid the health crisis. Speaking with FN, Richard Chamberlain, managing director of general retail at RBC Capital Markets, explained that JD Sports is seeing “strong offset to store disruption” from online sales — and there remains much room for growth for the DTLR and Shoe Palace brands.
“DTLR will give JD more exposure to the urban demographic in the U.S. sports retail sector. Like Shoe Palace, DTLR is relatively undeveloped online, with less than 5% online penetration, although it has a reasonable weighting in apparel,” explained Richard Chamberlain, managing director of general retail at RBC Capital Markets. “Therefore, JD has an opportunity here to add its digital expertise to DTLR in future.”
Market watchers also praised the DTLR acquisition as the right fit for JD Sports when compared with some of the other firms the company was said to be courting for purchase in recent months. JD had reportedly joined the bidding race for Topshop. Multiple publications based in the U.K. had suggested that the athletic company — in a partnership with U.S.-based retail conglomerate Authentic Brands Group — would snap up the fashion brand after parent Arcadia Group collapsed into administration in late November. (Today, Asos Plc announced that it had bought Topshop as well as sister brands Topman, Miss Selfridge and HIIT for more than $450 million.) JD Sports was also previously in discussions to save Debenhams, which recently sold all of its intellectual property assets for $75.4 million to Boohoo.com UK Ltd.
“The deal is consistent with JD Sports’ existing strategy. Given recent rumors regarding potential interest in Arcadia and Debenhams, we think investors had been slightly concerned about JD Sports buying something non-core or in a different vertical,” Holmes added. “We continue to see JD Sports as a best in-class retailer in an attractive category.”