Shares in the self-styled ‘king of trainers’ JD Sports Fashion (JD.) dipped 1.4% to 806p, halving their earlier losses, after the company confirmed recent press speculation it was planning to raise equity capital to fund its expansion plans.

In a brief statement, the high-street sportswear chain said it was ‘exploring additional funding options with a view to increasing its flexibility to invest in future strategic opportunities’, which could involve a non pre-emptive equity placing.

Press reports had suggested the firm could ask investors for up to £400 million, although management refused to confirm a figure.

STRONG TRADING

Despite the forced temporary closure of many of its stores, last week JD reported ‘robust’ demand through the second half of the current year, including the key selling months of November and December.

Revenues for the 22-week period to 2 January were up more than 5% on a like-for-like basis ‘as consumers readily switched between physical and digital channels’, the firm said.

As a result, management now sees pre-tax profits for the year to the end of January in excess of £400 million, significantly ahead of market expectations of £295 million.

However, due to the ongoing uncertain outlook, with stores in the UK likely to be closed until at least Easter, rather than seeing a strong improvement in profits for the year to next January the firm is predicting a more measured increase of between 5% and 10%.

EXPANSION PLANS

In order to maintain sales momentum, last month the firm bought US retailer Shoe Palace for $681 million. In the year to December, Shoe Palace generated sales of $435 million and profits of $52 million, making it a significant addition to JD’s existing US store network and its Finish Line chain.

At the same time, JD was in talks with UK department store chain Debenhams, although a deal fell through due to the significant level capital investment needed to turn the business around.

Shore Capital analyst Greg Lawless said he was not that surprised the company was considering an equity raise ‘given its global ambitions and the potential M&A opportunities that might arise from the fallout of Covid in the retail sector both in the UK and internationally’.

He pointed to the trend among current retail winners to scale up, citing, among other deals, the acquisition of Debenhams’ brands by Boohoo (BOO:AIM), adding JD Sports’ management team was ‘ambitious’ and ‘worth backing’.

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Issue Date: 26 Jan 2021