In a company statement reporting an update to the company’s medium-term plan, JD Sports Fashion Plc (JD Group) CEO Régis Schultz said the company operates within an attractive, long-term growth market and its is well positioned to continue growing market share. Shareholders, however, must be growing impatient as the company has taken action to reduce a focus on M&A and infrastructure investments and instead focus on improving returns for investors.

While the global sports fashion sector is still seen by JD Group as an attractive and growing market, the company now expects the sector to grow at a slower rate over the medium term and is adapting its plans to capitalize on growth opportunities and the investments already made in infrastructure over the last two years. The revised plan also has a focus on improving returns to shareholders and plans a share buyback program.

“We have strong brand partner relationships and an agile, multi-brand model which allows us to drive, and respond quickly to, market trends,” Schultz noted. “We are highly cash generative and disciplined in terms of our capital allocation opportunities.”

He went on to say that the company has made significant strategic progress over the last two years, with accelerated growth of the JD brand, particularly in North America and Europe, while continuing to build a global sports fashion powerhouse through the acquisitions of Hibbett and Courir, taking full ownership of ISRG in Iberia and MIG in Eastern Europe, and disposing of around 30 non-core businesses. He said they have upgraded their global supply chain and built the required infrastructure and governance for a group of their scale.

“Reflecting slower market growth and the investments we have made in our supply chain and infrastructure, we are updating our medium-term plans to capitalise on our organic growth opportunities in North America and Europe, deliver productivity and efficiency benefits from the investments and utilise our strong cash generation to deliver improved returns for our shareholders,” Shultz explained.

Highlights

  • Evolving medium-term plans to focus on growth, profitability and improved returns
    • North America: Leverage the multi-fascia customer proposition to grow ahead of the market and improve JD’s return on space.
    • Europe: Improve profitability by focusing on key markets and delivering European supply chain investment benefit.
    • UK: Stabilize and improve UK productivity.
  • Updated, balanced capital allocation priorities, reflecting improved cash generation
    • Capital expenditure to trend from 5 percent to 3 percent to 3.5 percent of revenue, reflecting the end of the heightened investment phase.
    • Agreement to defer Genesis buyout to 2029 and 2030.
    • Launch of an initial £100 million share buyback program.

The company noted that there is a 20 percent non-controlling interest in Genesis, the holding company for its North American business. This was scheduled initially to be bought out by the Group via four tranches of 5 percent across 2025-2028. This has now been deferred to two tranches of 10 percent across 2029 and 2030.

Strategic Progress to Date
The company referenced its current five-year strategic plan that was launched in February 2023 with the aim of building a leading sports fashion powerhouse. The company created four strategic pillars to cover the main elements of the plan: JD First; Complementary Concepts; Beyond Physical Retail; and People, Partners & Communities.

Over the first two years of the plan, the company said it has made significant progress across all four strategic pillars: –

  • JD First
    • Opened ~400 new JD stores globally, delivering average payback of less than three years.
    • Developed and launched a capital-light franchise model.
  • Complementary Concepts
    • Improved reach with the acquisitions of Hibbett and Courir for £1.4 billion.
    • Assumed full ownership of ISRG in Iberia and MIG in Eastern Europe, and disposed of ~30 non-core businesses.
  • Beyond Physical Retail
    • Upgraded the global supply chain with the opening of new distribution centers in the Netherlands, U.S. west coast and Australia.
    • Developed the JD Status loyalty program which now has over 8 million active users worldwide.
  • People, Partners & Communities
    • Built a governance, controls and systems infrastructure to support global scale with significant capital and operating investment.
    • Invested over £100 million of additional people cost across minimum wage increases and removal of under-age wage banding.

Medium-Term Plan Update
JD Group said it has become the leading, global Sports Fashion powerhouse.

“Our four strategic pillars and our business model position us well to deliver long-term growth, healthier margins and stronger cash generation,” the Group said in its statement. “Global sports fashion is an attractive and growing market, but we now expect it to grow at a slower rate over the medium term. We are therefore adapting our plans to capitalise on our growth opportunities and the investments we have made in our infrastructure over the last two years to improve returns for our shareholders.”

The highlighted a number of focused actions across the its four strategic pillars:

  • JD First
    • Build JD brand awareness in North America through the opening of new stores and completing the conversion of Finish Line stores to the JD banner.
    • Improve Europe profitability by focusing on key markets and delivering supply chain investment benefits.
    • Improve UK productivity through investment in the company’s estate and delivering cost efficiencies.
  • Complementary Concepts
    • Capitalise on the Group’s multi-fascia customer proposition in North America to grow ahead of the market and improve the return on space.
    • Accelerate growth of the Courir brand in Europe.
    • Enhance the European Sporting Goods business and sharpen the UK Outdoor business.
  • Beyond Physical Retail
    • Deliver benefits from the Group’s significant supply chain investment in the last two years.
    • Integrate U.S. supply chain and systems on time and to budget delivering targeted synergies.
    • Continue to improve the omni-channel proposition.
  • People, Partners and Communities
    • Deliver benefits from investments in people and systems across support functions.

Capital Priorities and Shareholder Returns
The company said its strategy to drive shareholder value will be led by growing organic revenue ahead of the market and growing profit ahead of revenue. This is expected to drive strong cash generation and enhance shareholder returns.

Underpinned by a strong balance sheet, the company said its capital allocation priorities are:

  • Organic investment in the business. JD Group said it will invest to capitalize on its growth opportunities across North America and Europe, and maintain its disciplined approach on store investment to deliver a three-year payback. As the Group comes to the end of a significant investment in its supply chain and infrastructure, it expects capital expenditure to trend from ~5 percent of revenue to a range of 3 percent to 3.5 percent over the medium term.
  • Ensure future commitments can be met. Reflecting the important role the Mersho family continues to play in the integration, development and long-term growth of the North American business, JD Group has agreed to defer the buyout of their 20 percent non-controlling interest in Genesis, the parent company of the North American business, to two tranches of 10 percent each in 2029 and 2030.
  • Pay a progressive dividend.
  • Using surplus cash to improve returns. JD Group anticipates generating material surplus cash after those commitments. This cash can be applied to increasing investment in the Group, M&A or to providing incremental returns to shareholders.

“As we are now moving into a lower phase of capital investment with no material M&A opportunities in the pipeline, and reflecting the liquidity headroom created by the deferral of the Genesis option, we are in a position to provide incremental shareholder returns,” the company suggested. In line with this focus, the Board intends to announce the commencement of an initial £100 million share buyback program.

Image courtesy JD Sports Fashion Plc