Hibbett Sports Inc., an athletic specialty retailer, on Monday announced that the company has signed a definitive agreement to acquire privately held City Gear, a city specialty retailer of premium athletic footwear, apparel and accessories with 135 stores in 15 states.
Terms of the transaction include consideration of $88 million in cash to be paid at closing and the potential for up to $25 million in additional consideration paid over the next two years, subject to certain performance-based targets.
City Gear will operate as a subsidiary of Hibbett Sporting Goods Inc., from City Gear’s current headquarters in Memphis, TN, and will continue to be led by members of City Gear’s senior management team.
One-time transaction costs are expected to be dilutive to earnings per diluted share by approximately $0.04 to $0.05 in the third quarter ended November 3, 2018, and by approximately $0.08 to $0.10 per diluted share in the fourth quarter ended February 2, 2019. Excluding one-time transaction costs, the acquisition is expected to be slightly accretive in the fourth quarter. For fiscal year 2020, the transaction is expected to be accretive including the impact of related one-time expenses.
City Gear, known for superior customer service and a compelling merchandise assortment, focuses on fashion-forward customers with lifestyles drawn to and driven by the “sneaker culture.” For the last fiscal year ended February 4, 2018, City Gear reported total revenue of approximately $190 million. For the past three years, same-store sales have averaged in the mid-single digit range. Geographic overlap with Hibbett’s stores is not significant, and significant opportunity exists for future store growth.
Mike Longo, CEO of City Gear, stated, “City Gear is excited to join the Hibbett team and contribute to the winning tradition they have established over the years. We believe that Hibbett provides City Gear the ideal platform to expand upon our successes in serving our loyal customers and are excited to continue to grow leveraging Hibbett’s capabilities.”
Also commenting on the announcement, Jeff Rosenthal, Hibbett’s president and CEO, stated, “We are pleased and excited to announce this acquisition, which provides substantially greater scale in the athletic specialty market and is an extension of our strategy to provide high demand, branded products to underserved markets. City Gear represents a key brand with the fashion-forward consumer and will allow us to extend our customer base and provide a significant opportunity for growth. In addition, Hibbett will provide City Gear the needed infrastructure for future growth, including strong internal systems, omni-channel capabilities and real estate expertise.” Rosenthal noted that both companies share strong, attractive brands that resonate with customers such as Nike, Jordan, Adidas, Puma, Converse, Fila and others.
Hibbett expects to complete the transaction by early December 2018, subject to customary closing conditions. The company will finance the initial purchase through available cash along with funds from its credit facilities. At August 4, 2018, the company ended the second quarter of Fiscal 2019 with $119.6 million of available cash and cash equivalents on its consolidated balance sheet and no bank debt outstanding.
PJ Solomon served as financial adviser to Hibbett on this transaction, while Bass Berry & Sims provided legal advice. Fifth Third Capital Markets provided financial advice to City Gear on this transaction, while Wyatt, Tarrant, & Combs provided legal advice.