JD Sports: Hibbett Deal Raises Execution Risk Concerns

JD Sports (LON: JD.) shares dipped almost 3% Monday after analysts at Barclays and Deutsche Bank released notes covering the stock, relaying their concerns regarding the recently announced deal to acquire Hibbett. 

Last week the sportswear retailer announced the proposed acquisition of American athletic fashion retailer Hibbett Inc (NASDAQ: HIBB) for about $1.08 billion (£878 million). The deal is expected to be completed in the second half of this year.

“This acquisition is in line with our strategic priorities and is a very important transaction for our strategic and financial development,” JD Sports CEO Régis Schultz said in the company's press release. 

He added: “Strategically, it enhances our presence within North America and achieves our objective of strengthening our Complementary Concepts division. Hibbett's footprint is highly complementary, adding a stronger presence in communities across the southeastern US, where we currently have a limited presence. It will also provide a stronger platform for the rollout of the JD fascia in the US.”

However, the acquisition has been met with some caution. Barclays analysts downgraded the rating for JD Sports Fashion to Equal Weight from Overweight in a note Monday, lowering the price target to 140p, down from 165p per share. 

Barclays suggested that it would have been better for the company to establish a solid track record before making another acquisition, especially with concerns about Nike's innovation. While the Hibbett deal looks accretive, it “accentuates brand innovation and execution risks,” analysts at the bank stated.

Meanwhile, Deutsche Bank shared those concerns, initiating coverage of JD Sports Fashion with a Hold rating and 115p per share price target in a note covering London-listed retailers on Monday. 

Deutsche Bank stated that while JD's recently announced acquisition of Hibbett increases its presence in the US market, it doesn't ease the concerns on execution.