JD paid almost £400mln for Finish Line last year, as part of a “transformational” deal that took it into the world’s largest ‘athleisure’ market.
But UBS reckons investors are yet to fully appreciate this “landmark” acquisition, with its data pointing to a recent recovery in gross margin and like-for-like sales.
“With the shares up 60% year-to-date vs the sector, we believe the market is confident in sustained momentum in the core JD business, but is still underestimating the Finish Line turnaround opportunity,” said the analysts in a note to clients.
“Following five years of gross margin pressure (-470bp) and a 64% decline in EBIT, the latest online pricing data for FL shows evidence of a recovery developing: (1) net promotions are down 7% yoy in April-June; (2) apparel SKU mix is up 12% yoy (apparel commands a 200bp gross margin premium to footwear); and (3) current prices (net of discounts) are up 7% yoy in April-June.
“JD will have more influence over the product assortment from 2H20, meaning there could be further upside to come.”
JD shares were up 1% to 618p in afternoon trading on Monday, still some way short of UBS’s price target of 700p.