We've looked at United Kingdom-based JD Sports' U.S. expansion plans in the past, plans that seemed “ambitious” given what could be viewed as a saturated market. Well, JD’s plans continue to evolve with this week’s news being the proposed acquisition of Hibbett Sports. JD Sports management cited several reasons for making the proposal, including a complementary store footprint, complementary brand partnerships, and increased scale benefits.
Recall our previous discussions of overseas brands setting their sights on increasing their U.S. consumer exposure through new store openings. In past years, JD has acquired West Coast-focused Shoe Palace (2021) and East Coast-focused DTLR (2022), as shown below. This deal would increase JD's revenue mix exposure to the U.S. from 32% to 40%.
Source: JD Sports Proposed Acquisition of Hibbett, Inc. Presentation
Using Placer.ai's new Map Studio feature, we've shown Hibbett's Southeast U.S. footprint below overlaid on household income by county. As is apparent, a lot of the locations are in more rural markets with very modest income demographics. The footprint (1,169 locations) is also largely street-based with only 20% of stores located in malls.
The complementary nature can also be seen in management's expectations for low- to mid-single-digit earnings accretion. (The figure seems low to us given the savings to come from cutting public company expense and nationwide synergies from supply chain, logistics, IT, and product costs.) The acquisition will undoubtedly increase the importance of JD to brand partners, and further improve brand relationships (i.e., better allocations of hot styles and better prices on all). The “all cash” nature of the financing also implies that management deems there to be high certainty of the accretion. One could also suppose that Hibbett’s Southeast assets will be used to lower the cost-to-serve for orders in the region on JD Sport.com.
The timing is interesting, as well, given the increasing competition between the brands (Nike, adidas, On, HOKA, New Balance, among others) to enhance their U.S. wholesale business, which we wrote about two weeks ago as the pendulum of “economics” swings back towards retailers. The timing is also relatively opportunistic given that Hibbett’s financial results have been under substantial pressure due to the overage of supply coming out of the pandemic and supply chain congestion.
