Shares in sportswear giant JD Sports Fashion (JD.) have cheapened 2.2% to 632.6p after the retailer confirmed it has filed a notice of intention with the courts to appoint administrators to its struggling Go Outdoors division.
Bury-headquartered JD Sports stressed administrators have not been appointed to the specialist camping store division yet, and it has been exploring its options with regards to Go Outdoors, although it seems highly likely this could be yet another retail operation to go into administration.
UNHAPPY CAMPERS
JD Sports had good intentions to grow the business when it bought Go Outdoors for £112 million in 2016, yet it appears as if the acquired business took a back seat while JD concentrated most of its efforts on its expanding shoes and athleisure empire.
Go Outdoors specialises in camping, bikes and outdoor pursuits equipment and clothing and also owns the Blacks and Millets brands.
Analysts at Shore Capital point out the division has been struggling in recent years and the administration process ‘will accelerate any restructuring. This could include store rental holidays or rent cuts across the portfolio of 67 stores’.
The court action in effect creates an immediate moratorium around Go Outdoors which lasts for ten days.
During this moratorium, any creditors cannot take any legal action or continue with any existing legal proceedings against the company without the court’s permission.
WHAT THE EXPERTS ARE SAYING
Russ Mould, investment director at AJ Bell, says Go Outdoors should have been a beneficiary from the current restrictions on forms of travel.
‘There is likely to be a boom in staycations this year and camping trips could be the solution to many people seeking to get away from the confines of their home without having to get on a plane. That should have been a tailwind for Go Outdoors’ tent sales,’ he explained.
‘The push for more people to cycle to work rather than use public transport should have also driven the retailer’s bike sales.
‘Sadly, the timing of these tailwinds might have come too late. Closure of Go Outdoors’ stores during lockdown will have been negative for sales despite it also having some support in the form of online operations, compounding a pre-pandemic problem that the business was already struggling.’
Despite today’s news, Shore Capital reiterated its ‘buy’ rating on JD Sports.
‘Given the COVID pandemic the company is now looking to restructure the division to make it more sustainable and the administration process allows it the optionality to restructure the store portfolio,’ said the broker.
‘There have been a number of recent retail administrations including Cath Kidston, Laura Ashley and All Saints with potentially further retail fallout to come.
‘We will watch developments closely, in particular the cash costs of any store closure programme. Whilst today’s restructuring news on the troubled Go Outdoors division is disappointing, we reiterate that the core investment case is centred on the Sports fashion division and the US opportunity, in particular.’
