JD Sports Fashion — Set to take on America

JD Sports Fashion — Set to take on America

Few retailers can boast the enviable track record of JD Sports, the ambitious multi-channel ‘athleisure’ business with a fashion-forward offering that combines the major sportswear brands with established own-label ranges. The company’s expanding international footprint is about to be enhanced by a potentially game-changing recently announced US acquisition, which has yet to be reflected in the consensus forecasts.

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JD Sports Fashion

Set to take on America

General retail

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22 May 2018

Price

380.4p

Market cap

£3.7bn

Share price graph

Share details

Code

JD.

Listing

LSE

Shares in issue

973.2m

Business description

JD Sports is a multi-channel retailer of branded and own-brand sports fashion and outdoor wear. The group has c 1,500 retail stores, predominately located across the UK and Europe, with a small but expanding footprint in the Asia-Pacific region. It operates multiple local currency/language websites.

Bull

Significant opportunity to penetrate the US market via the announced acquisition of Finish Line.

Strong cash generation for further investment in infrastructure and acquisition targets.

Strong relationships with the major sports brands.

Bear

Execution risks associated with the US acquisition.

Risk of supplier withdrawal of a key sports brand.

Risk of a shift in consumer tastes away from ‘athleisure’.

Analysts

Kate Heseltine

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3077 5700

Few retailers can boast the enviable track record of JD Sports, the ambitious multi-channel ‘athleisure’ business with a fashion-forward offering that combines the major sportswear brands with established own-label ranges. The company’s expanding international footprint is about to be enhanced by a potentially game-changing recently announced US acquisition, which has yet to be reflected in the consensus forecasts.

A consistent track record of beating expectations

JD Sports’s ambition to dominate the evidently booming market for sports-inspired millennial fashion apparel and footwear (‘athleisure’) is paying dividends. The group has a consistent track record of exceeding market forecasts, even during periods of economic uncertainty. The FY18 results delivered a record PBT of £307.4m, reflecting a 45.4% three-year CAGR, driven by strong online sales growth, positive store LFLs, tight cost control and strategic acquisitions.

Acquisition of an established US sports retailer

In March JD Sports announced the proposed $558m (£413m) cash acquisition of Finish Line, a key US-listed multi-branded sports retailer with 556 stores principally located in the US, 563 Macy’s department store concessions and a transactional website, generating revenue of $1.8bn (£1.3bn) and PBT of $54m (£40m) in FY17. Clearly, this deal will give the group an immediate and established foothold in the world’s largest sportswear market. It also has the potential to enhance JD Sports’s strategic importance to the major sportswear brands, such as US-based Nike.

Deal yet to be reflected in consensus forecasts

Subject to approvals, the Finish Line deal is expected to close no earlier than June 2018. JD Sports has stated that initial integration synergies are likely to be limited and that it expects the acquisition to make a small incremental positive contribution to FY19e earnings. Thereafter, the longer-term financial benefits will be dependent on the speed at which changes (details of which have yet to be announced) can be made to the Finish Line business and improve the retail offer.

Discount to peer group unjustified

The shares trade at a c 15% discount to the Bloomberg comparative peer group on both a forward P/E (14.4x) and EV/EBITDA (c 8.6x) basis. This seems unjustified given the group’s consistently impressive performance, the overseas opportunity, strong cash generation and potential for upgrades to consensus forecasts.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

02/18

3,161.4

307.4

25.2

1.6

15.1

0.4

02/19e

3,475.3

329.8

26.4

1.7

14.4

0.4

02/20e

3,799.0

361.0

29.1

1.8

13.1

0.5

02/21e

4,166.0

402.5

32.1

1.9

11.9

0.5

Source: Bloomberg

EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2018]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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