Proactive Investors - Citi has provided its insights on the financial impact of JD Sports Fashion PLC (LON:JD)'s acquisition of American sportswear retailer Hibbett following a call with management in the wake of the $1.1 billion deal announced Tuesday.
Specifically, JD's management anticipates the deal will be accretive to earnings per share by a low to mid-single-digit percentage in the first year before considering synergies, meaning it should start adding to the company's profit shortly after the deal is completed.
Importantly, there are no immediate plans to rebrand Hibbett stores under the JD banner, allowing both brands to maintain their unique identities and market presence. This decision likely reflects a strategic move to leverage Hibbett’s established brand equity and customer base across its 1,169 stores in 36 states, the American investment bank said.
Another positive highlight from the call was the minimal geographic overlap between JD's and Hibbett's store locations, which suggests that the combined entity can cover more ground in the US market without cannibalising its own sales.
Additionally, Hibbett's efficient supply chain was noted as a strong asset that would serve the broader business group at a lower cost than JD's existing operations in the US.
Citi also pointed out the involvement of Genesis, a 20% minority shareholder in JD’s US business, which will extend the same level of investment to the Hibbett deal, JD's biggest transaction to date. This ongoing partnership is viewed positively, indicating strong investor confidence in the UK retailer's US strategy.
The acquisition is set against a backdrop of JD Sports' rapid expansion in the US, beginning with its purchase of Finish Line in 2018 and followed by several other acquisitions, including DTLR Villa in 2021. The deal is expected to increase JD Sports' North American revenues to approximately £4.7 billion, boosting the region’s contribution to total sales from 30% to around 40%.
Up sharply on Tuesday, JD's shares were off 1.5% at 121.1p in afternoon trading.