Interactive Investor

ii view: JD Sports considers the future of Go Outdoors

22nd June 2020 11:40

Keith Bowman from interactive investor

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Has Covid-19 taken this small piece of the group’s empire beyond repair? 

Notice to appoint administrators at Go Outdoors

ii round-up:

In a brief statement, JD Sports (LSE:JD.) today confirmed that it has been considering a number of strategic options for its subsidiary Go Outdoors.

The retailer, which is second only to Next in UK stock market value terms, also confirms it had filed a notice of intention to appoint administrators at Go Outdoors.  

The notice creates an immediate moratorium around Go Outdoors and its property which lasts for 10 business days. During this moratorium, Go's creditors cannot take legal action or continue with any existing legal proceedings against the company without the Court's permission.

But administrators have not yet been appointed. Go Outdoors sells camping equipment, bicycles and clothes across more than 60 stores. 

JD Sport shares fell almost 3% lower in early UK trading and are down over 20% year-to-date. Like non-essential retailers across the board, the group’s stores have been hit by temporary closures under the coronavirus pandemic. 

Earlier this year, the Competition and Markets Authority's (CMA) blocked its acquisition of smaller sporting retailer Footasylum – a decision which it may still appeal against. 

In a recent note broker, Morgan Stanley also expressed some caution given what it sees as short-term headwinds. JD’s core sporting outlets attract younger consumers, a demographic which is both more likely to be hit by recession and also use public transport. It rates the shares as a 'hold'. 

Full-year results to 1 February are scheduled for Tuesday 7 July. 

ii view:

Acceptance of more casual workwear and the rise of sports men and women to near rock star status, are arguably trends which have helped fuel the impressive growth of sports retailers and apparel brands over recent years. Through expansion and acquisition, JD has clearly played its hand well. 

The group’s march overseas now sees nearly a third of sales coming from Europe, a fifth from the US, around 5% from the Rest of the World including Asia, and just under half from the UK. JD bought Go Outdoors over three years ago for just over £110 million. It accounts for less than 5% of its overall store outlets. Recently announced measures to conserve cash under Covid-19 included voluntary salary reductions for directors and a suspension of the dividend payment. 

For investors, the younger customer demographic offers some near-term Covid-related caution. A trend for big brands such as Nike to sell through their own outlets, bypassing the likes of JD, also raises another concern. But, for now, given the company’s extremely impressive track record, investors are likely to remain focused on expected long-term growth. 

Positives: 

  • Diversity of product, brand name and geographical location
  • Expanding international presence

Negatives:

  • Maybe forced to sell Footasylum under CMA decision
  • UK retailers have a poor track record for operating in the USA

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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