Plenty of British retailers have stumbled and fallen on what they hoped would be a path to riches in America — think Marks & Spencer, or Tesco — but one that seems to be walking the walk as well as talking the talk is JD Sports. In fact, it shows every sign of expanding still further in the world’s biggest economy.
Having just raised more than £460 million from a placing with its shareholders, it has about £800 million or so to put to work in an international growth drive that, in addition to furthering its American dream, is likely to take it deeper into eastern Europe and southern Africa.
The first JD Sports shop was opened in Bury, Greater Manchester, in 1981. If all its branded outlets and recent acquisitions are totted up, shortly there will be 2,864 stores across Britain, Europe, the United States and the rest of the world, including Asia and Australia. The company also sells through Blacks, Millets and GO Outdoors, among others, and operates about 80 gyms.
Central to its success has been its ability to pull in big brand names, including Nike and adidas, to sell sports shoes and other gear to fashion-conscious customers prepared to fork out several hundred pounds for a pair of trainers. Selling less expensive brands alongside the high-end labels, the group has been able to tap the lucrative athleisure market, retailing tracksuits, jogging bottoms and the like.
JD Sports entered the US in 2018 when it spent £396 million buying Finish Line, following that with deals to buy Shoe Palace for $325 million at the end of last year and, this month, DTLR Villa in a takeover worth $495 million. While Shoe Palace has given it a presence on the American west coast, DTLR Villa gives it weight in northern and eastern states. Rather than trying to stamp its name on a potentially unreceptive American audience, JD Sports has tended to keep fascias such as Finish Line alive.
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The expansion stateside has been swift and successful. While Britain remains the retailer’s main market, accounting for about 42 per cent of sales, America is catching up quickly: it generated 33 per cent of turnover at the last count, but that was before the most recent acquisitions.
The group seems to have responded well to the coronavirus outbreak. It has a large delivery warehouse in Rochdale, Greater Manchester, which supplies shops in Britain and Europe and fulfils online orders. While it furloughed store staff, it converted the depot into an online-only operation, keeping the workforce on but not bringing in the agency staff that it normally would use. Cranking up the online effort has helped to limit the damage of having to shutter shops and, once the pandemic subsides, JD Sports reckons that about 30 per cent of its sales will be digital, compared with 25 per cent before. A new distribution centre in Europe is on the way.
True, both sales and profits were hit over the six months to the end of August, but trading subsequently regained its momentum. It would have been pleasing for shareholders that the retailer was able to say last month that second-half sales were running ahead of the previous year and that headline annual pre-tax profits for the 12 months to the beginning of February would be at least £400 million, rather higher than analysts’ expectations of more like £295 million.
Investors don’t buy JD Sports for the dividend, which on its likely return next year will yield only about 0.1 per cent. They’ve bought into the growth story and growth they have got.
The shares, down 12p, or 1.4 per cent, at 831¼p, trade for 22.4 times Peel Hunt’s forecast earnings. They probably justify it.
Advice Buy
Why Accomplished retailer with smart, targeted approach to acquisitions that should do even better after the pandemic
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NCC Group
Could NCC Group finally be on the right side of a recovery? The embattled cybersecurity company says that it aims to make the world safer and more secure, but it hasn’t made life like that for investors. Profit warnings, testy relations with analysts and a volatile share price have been regular characteristics in recent years, not to mention messy undigested acquisitions and an uncomfortably high level of indebtedness.
After a troubled early few months with Covid-19, however, NCC’s financial results for the six months to the end of November showed a return to growth, including at a part of the business that looked to be in terminal decline. The shares seem to be on the way back up.
NCC was formed in 1999 through a management buyout at the National Computer Centre. It was listed in 2004, offers software and consultancy services in Britain, Europe, North America and Asia and employs about 1,800 people.
The larger of its two divisions — assurance — offers consultancy and testing services and has an emergency response unit for digital attacks. Its problem has been patchy demand. The smaller unit, which used to be called escrow but has been renamed “resilience”, backs up and stores software and systems. The growing move by corporations to store their data in the cloud looked to have wildly reduced its relevance.
The turnaround has been spearheaded by Adam Palser, 45, brought in as chief executive just over three years ago from QinetiQ, the defence research company. Palser put deals on hold and set about integrating the companies that had been acquired but not digested. He began to bring down debt, launched products and embraced the cloud, with a proposition that has won clients including Barclays. With much of its consulting and testing work carried out on site, NCC had to adjust quickly to Covid-19, yet the assurance division, with consultants working from home, also has secured notable recent contracts, including Facebook.
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NCC’s shares, up 4½p, or 1.7 per cent, at 270p, are valued at 27 times Panmure Gordon’s forecast earnings and yield 1.8 per cent. Palser has made them worth holding.
Advice Hold
Why Recovery under way and more growth should come
