So far so good for Finish Line under its new owner, JD Sports. JD Sports said Finish Line’s comps were up 7 percent in 2018 with sales trends improving as the year progressed. The first JD stores to land in the U.S. are also seeing encouraging initial results.

Peter Cowgill, JD Sports’ executive chairman, bullishly said in his company’s year-end statement, “We believe that our acquisition of the Finish Line business in the United States, the largest market for sport lifestyle footwear and apparel and the home to many of the global sportswear brands, will have positive consequences for our long-term brand engagement whilst significantly extending the Group’s global reach. We maintain our belief that Finish Line is capable of delivering improved levels of profitability.”

JD Sports said that on an unaudited pro-forma basis over the full 12 months ended February 2, the U.S. business – including 556 Finish Line doors, 375 Finish Line shops inside Macy’s and five JD stores – delivered an EBITDA (before exceptional items) of $125.4 million on net sales of $1.92 billion.

The same-store sales gain of 7 percent represents the core Finish Line business and excludes Finish Line in-store concession shops inside Macy’s.

The top-line growth in the U.S. was driven by a strong performance online with growth in excess of 20 percent although Cowgill noted that it was “pleasing that like for like sales in stores were also positive in this 12 month period.” Product margin in the 12 months for the U.S. segment improved slightly to 42.2 percent from 41.5 percent the prior year.  Added Cowgill, “Whilst this is encouraging, we are mindful that disciplines on clearing fragmented and dated stock can be improved further.”

Cowgill noted that Sam Sato, the CEO of Finish Line at the time of the acquisition, retired at the end of the year. Following a managed transition, a joint leadership team is now in place comprising Finish Line’s long-time CFO, Ed Wilhelm, and JD’s global retail director. Said Cowgill, “Working together, this combination will help ensure that development of the proposition is supported by increased rigor to the financial analysis.”

JD has also reassigned a number of key commercial managers from JD’s core business to assist the Finish Line team. He said, “We firmly believe that these secondments will provide positive benefits to Finish Line in the short term and to the wider Group in the longer term as our team further develops the skills necessary to deliver success with an increasingly international emphasis.”

In his letter, Cowgill said JD will seek to improve Finish Line’s performance by focusing on four main pillars:

  • Improving sales densities in stores with an enriched proposition that delivers the elevated standards of visual merchandising and retail theater necessary to fully ignite the consumers’ desire to purchase both footwear and apparel.
  • Improving product margins through buying disciplines and management of markdown.
  • Exiting stores where property costs are not appropriate for the level of footfall.
  • Appropriate scaling of central overheads.

“We intend to complement Finish Line’s strengths (particularly digital, where online already contributes more than 20 percent of sales) with JD’s strengths on buying and merchandising processes and its ability to create an innovative and exciting retail theater,” said Cowgill. ”A number of initiatives are now underway to improve the visual merchandising standards across the Finish Line portfolio with new fixtures planned for approximately 70 stores ahead of the Back to School period to help drive additional apparel sales.”

JD also noted that it opened its first five JD stores in the U.S. prior to the key holiday season to promising results.

Cowgill elaborated, “It is too early to make any conclusions on the potential for JD in the United States as these stores do not currently contain a full representation of the JD product offer, particularly apparel. Given the lead times on ordering we do not expect this situation to change materially until the second half of the year. These stores have also not had the benefit of full digital support which we anticipate will commence later in the spring leveraging off the Finish Line digital expertise. That said, we are encouraged with the early results and we are using the learnings to further refine our proposition.”

There were five JD stores trading at the end of the year with conversions of existing Finish Line stores in Chicago, Indianapolis and Columbus; the conversion and extension of an existing store in Washington D.C.; and a new store in a premium mall in Houston. The conversion of the Finish Line store at the Mall of America in Bloomington, MN is ongoing with this store due to open shortly.

“We are also pleased with the positive performance of Finish Line in the second half of the year,” added Cowgill. “We will look to drive further improvements in the performance of Finish Line in malls whilst developing JD in new locations in the major metropolitan areas with this dual fascia approach maximizing our reach across different demographics.”

JD Sports Revenues Catapult 49 Percent In 2018

Companywide, JD Sports delivered stellar results for the year.

Revenue jumped 49.2 percent to £4.72 billion from £3.16 billion a year ago. Profits before taxes improved 15.4 percent to £339.9 billion. Operating profit before extraordinary items rose 17.1 percent to £361.5 million.

In the Sports Fashion segment, sales jumped 56.5 percent to £4.3 billion. EBITDA improved 32.1 percent to £478.4 million. Operating profit before exceptional items ran up 31.9 percent to £365.8 million. JD said the operating results included a contribution of £26.6 million from the combined Finish Line and JD business in the U.S. in the 33-week period post acquisition.

The company’s flagship banner is JD but other Sports Fashion banners include Size?, Footpatrol, Chausport, Sprinter, Next Athleisure as well as Finish line.

After a strong second half, total same-store sales across its global Sports Fashion banners, including online, grew 6 percent with double-digit growth in both Europe and Asia Pacific. Said Cowgill, ”Given the highly competitive environment with multiple points of distribution, including direct to consumer from the international brands themselves, this is an excellent performance and helps cement our positive view of the potential for further growth for JD in international markets.”

He said the overall margin in the Sports Fashion increased slightly in its same-store locations but overall gross margin was down to 48.0 percent from 49.2 percent as a result of the dilution from the newly acquired businesses, principally Finish Line and Sport Zone. Cowgill said the company believes it has the opportunities to reduce levels of markdown and raise gross margins in future years at both businesses.

Cowgill added, “We will continue to respect the premium nature of the product and the retail experience by avoiding what we believe is unnecessary short-term reactive discounting when others, including the international brands themselves, may take a different approach. The margin also benefitted from favorable movements in foreign exchange contracts.”

In the Outdoor segment, sales for the year inched up 1.2 percent to £421.4 million. EBITDA shrunk more than half to £10 million from £23 million. The segment showed an operating loss before extraordinary items of £4.3 million against £8.8 million a year ago. The segment includes Blacks, Millets, Ultimate Outdoors, Go Outdoors and Tiso.

Cowgill blamed the weaker performance on weather. He said, “Whilst the late winter weather was a positive for our Outdoor businesses in the early part of the year, this was then followed by a very hot and dry summer, which negatively impacted demand for jackets and other waterproof apparel. This situation did not improve in the autumn and early winter which were both unseasonably mild.”

He said he was encouraged that comps were still “marginally positive.” Gross margins were down 1 percent to 42.5 percent to manage overstocks due to adverse weather.

Looking ahead overall, Cowgill said the UK’s exit from the European Union could present some disruptions in the coming year but the board remains confident about JD’s international growth potential. Regarding the company’s near-term outlook, Cowgill said, “We are pleased with the continued underlying positive performance of the Group and are excited by the major developments ahead.”

Analysts React Favorably

Analysts based in the U.K. reacted highly positively to the results. Dan Coatsworth, at AJ Bell, wrote in a note, “JD is living proof that parts of the retail sector is alive and well. Sales continue to soar as it has found the perfect ingredients to keep the tills ringing.

“It is engaging with customers by offering exclusive products and staying abreast of constantly changing fashion trends. It is also recognizing the hard work of staff and giving them interesting career development opportunities thanks to its increasing global scale.”

Coatsworth also said the acquisition of Finish Line “opens the doors to the US market” while also providing an “opportunity to export JD’s formula so that it can improve Finish Line’s profits.”

He did note that an initiative to increase warehouse capacity to improve fulfillment may cause disruptions this year.

In another note, retail analysts Greg Lawless and Clive Black at Shore Capital said: “These are a record set of results showing continued momentum across the board. In particular, we highlight LFL sales in Sports Fashion of 6 percent, with double-digit growth from both Europe and Asia. There are continued encouraging positive noises about the US business Finish Line, where the focus is on improving the performance of the shopping mall stores, whilst also developing new locations in the major cities. The outdoor division maintained a double-digit EBITDA despite the long hot summer and mild weather through the winter.”

Jonathan Pritchard at Peel Hunt described JD’s performance as a ” truly vintage year.” He wrote, “The JD format is resonating with both sports brands and customers worldwide, and the US, for many the final frontier for JD, has started really well.”

Pritchard said its launch into the U.S. is seeing “a great start” as marked by the 7 percent comp gain at Finish Line and progress with bringing the JD banner to North America. Pritchard wrote, “JD is by its nature modest and doesn’t take too much credit for this at the moment but there is some talk of the JD “DNA” starting to make a difference: by that we mean strong merchandising, better buying and a greater focus on data use. The new JD-badged stores have done well in general with some variance in performance: crucially, despite the product only being from the Finish Line buy clothing sales are mid-teens of the mix in these stores. There will be a slightly slower pace of JD-badged roll out than we expected but that doesn’t worry us: we expect standalone brand new JD stores to emerge at around the end of FY20.”

Image courtesy Finish Line