Quiver Quantitative - JD Sports (JD) is intensifying its focus on the U.S. market with a significant acquisition of Hibbett Sports (HBB), a deal that values the American sports retailer at $1.08 billion. This move comes as part of JD Sports' strategic push to expand its footprint in the U.S., where it first made inroads in 2018 by acquiring Finish Line. Since then, JD Sports has continued to strengthen its presence through additional acquisitions like Shoe Palace and DTLR. The purchase of Hibbett, a company with a strong retail presence in the southeastern U.S., is seen as a bold bet amid a period marked by sluggish demand and heavy promotional activities in the retail sector, including a cautious revenue outlook from industry giant Nike (NYSE:NKE).
The acquisition is set to considerably increase JD Sports’ scale in North America, where the combined operations with Hibbett are projected to generate around $5.80 billion in revenue, accounting for about 40% of the group’s total sales. This represents a significant jump from the current 32% contribution from the region but still places JD Sports behind leading competitors such as Dick’s Sporting Goods and Foot Locker (NYSE:FL) in terms of sales volume. The deal not only enhances JD Sports' geographical coverage but also deepens its market penetration in the competitive U.S. sports retail landscape.
Market Overview: -JD Sports, a U.K.-based sportswear retailer, announced a $1.1 billion acquisition of Hibbett, a U.S. sporting goods chain. -This move strengthens JD Sports' presence in the U.S. market, a strategic priority despite current challenges like subdued demand and intense promotions.
Key Points: The deal accelerates JD Sports' U.S. expansion, following previous acquisitions like Finish Line, Shoe Palace, and DTLR. The combined North American revenue of JD Sports and Hibbett will reach nearly $5.8 billion, but still lag behind major competitors like Dick's Sporting Goods and Foot Locker. JD Sports is acquiring Hibbett for $87.5 per share, a significant premium over its pre-deal price.
Looking Ahead: -The deal strengthens JD Sports' foothold in the southeastern U.S., filling a gap in its existing network. -Analysts highlight both potential benefits (increased U.S. presence) and drawbacks (reliance on acquisitions and Nike (NKE) exposure) of the deal.
Despite the potential benefits, the acquisition raises some concerns among analysts. Experts from RBC (TSX:RY) (RBC) Capital Markets, Richard Chamberlain and Manjari Dhar, note that while the deal substantially boosts JD Sports' market share in the U.S., it also signals a possible shift from pursuing organic growth to relying more heavily on acquisitions. Additionally, this strategy might increase JD Sports' dependence on Nike, which could pose risks if the sneaker giant's sales continue to plateau.
Financially, JD Sports is strategically positioning itself to absorb Hibbett with a combination of $300 million from its existing U.S. cash reserves and a $1.0 billion extension of its bank facilities. The transaction, set at $87.5 per share in cash, represents a significant premium over Hibbett’s most recent closing price and highlights the aggressive approach JD Sports is taking to consolidate its position in the U.S. market. The completion of this deal, expected in the second half of the year pending regulatory approvals, marks a critical step in JD Sports’ ambition to become a leader in the global sports retail industry.
This article was originally published on Quiver Quantitative