On Fri, Oct 26, 2018 at 9:14 AM Alice Walker <alicewalker017@gmail.com> wrote:

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Background

JD sports fashion plc is one of the reputable fashion in the UK. JD sports fashion plc trace back to 1981, founded by John David from a single store in bury, and currently operates more than 12,300 stores including its retail fascia’s and provide more than 30,000 direct employment. The rapid expansion of its retails store is largely influenced by it management resilient for continuous acquisition of a strategic business in the business. the current executive chairman is Peter Cowgill. JD fashion opened its doors in London in 1989. A notable milestone in the history of JD was the flotation of its stock in the London stock market in 1996 (London stock exchange, 2018). The major market for JD sports fashion is currently in UK Ireland , but currently intensifying operation in 15 different country majority in Europe. Since 2005, the majority of the JD sports fashion plc shares are owned by Pentland group (JD sports fashion plc, 2018). With expanding demand influenced by a growing taste for sportswear, JD found it easy to penetrate them in the UK market.

Considering the high competition in the industry from both local and international brands 0JD fashions plc presented itself as a provider of exclusive unique products that meet the growing stylish need from the UK customers. By collaborating with already established brands such as Nike Puma and Reebok, JD fashion created an image of innovativeness and centered toward the stylish need of the consumers (JD sports fashion plc, 2018). JD fashions have created a reputation as a provider of high-quality premium products from the recognized brands. In an attempt to improve its competitiveness, and acquire synergy to venture into the global market JD fashions management has in the past implemented various strategies aimed at penetrating the market outside the UK.

During the first two decades, JD growth was accelerated through increasing its sale revenue from its established stores. After 2000, JD fashions experienced a rapid growth influenced by the corporate strategy of acquisition. In its distribution strategy, JD sports fashion primarily rely on retail sales supplemented with wholesale and its multi-channel model. Through it, multi-channel customers are able to access its products through its sales website, mobile phone apps and another online store.

A major development in JD fashion plc

Since the established of JD sports fashion, its management has taken various action that set the current success of the corporation. One of the notable steps was in 2002 when the organization managed to acquire the first sport, adding close to 200 stores in its portfolio. Later in 2004, JD fashion acquired Scotts and bank fashion, that saw the introduction of an innovative fascia brand that targets the young consumers (JD sports fashion plc, 2018). In the same year, in a move that saw JD fashion becoming one of the largest fashion industries in the UK was the acquisition of AllSports providing an additional 70 stores in its portfolio.

Later on, the organization intensified its acquisition providing it with an opportunity to venture into the foreign market. For instance, the acquisition of Chausportin France provided the organization with additional synergy to penetrate the French market. After the acquisition of Chausportin, JD fashion acquired the ownership of the Canterbury of New Zealand rugby brands.

In the past five years, the fashion industry in the UK and the global market has experienced some tough challenge. In order for JD fashions to remain competitive, the management has maintained an innovative approach in the operation of JD. One of the measures is by ensuring that it maintains market research as an ongoing process in order to actively monitor its rivals and evaluate consumers trends.

In 2016, one notable management decision was the acquisition of the multi-brand sports fashion in Malaysia. The acquisition provided an opportunity to venture in the Malaysian economy and more, intensify its online sales by gaining control of its trading website (JD sports fashion plc, 2018 in the same year, JD fashion opened its first fascia store in Portugal through the acquisition of 80% share issued by Sportlberica Sociedade, providing 12 stores into its portfolio. Flexing its muscles in the Australian market the organization acquired an 80% share in next athleisure Pty Limited providing additional 32 stores and a trading website (JD sports fashion plc, 2018). The acquisition in Malaysia followed by that in Australia in 2017, expressed the JD sports fashion plc ambition to venture outside the European market.

Moreover, the acquisition of going outdoors is an expression of the organization commitment to expands its market share through acquisition of key rivals in the industry and provide synergy to penetrate another region (Competition & Markets Authority, 2017).

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Current JD sports fashions plc markets segments and retail outlets

The table below provides a summary of the fascias store held by JD fashions and its respective subsidiaries in the year 2016 and 2017.

Table no1: data compiled from JD sports annual financial report 2018

The table above indicates the number of store outlet management by JD sports fashion in the UK and another market segment which indicated a significant increase in each market. JD sports fashion in collaboration with its subsidiaries offers a wide range of products. Some of the products in its portfolio include shirts, jackets, swimwear and footwear. Among its multiple channels, the retail stores account for the highest level attaining an 80% of the total revenue gain. The second is the multichannel attaining 16% with wholesale revenue accounting for 4% of the total revenue gain.

Stock market performance analysis for JD stock

Various analyst forecast that JD fashion will continue to perform well in the near future. Reflecting on its historical performance the organization has produced results above average in the last five years.

Currently, JD sports fashion plc has a market capitalization of approximately 3,751.81 million pounds (London stock exchange, 2018). Comparing the dividend issue in 2017 and 2018, a slight improvement of 5.2% existence on the divided payable per ordinary shares. On the other hand, adjusted earning per rose by 32% from the previous 19.04% in 2017 to 25.15% in 2018. While the basic earnings for the ordinary shareholders increased by 30% up to 23.83 per share from 18.33p in 2017.

However, although JD shares have experienced growth its dividend rise has remained relatively low influenced by the management decision to restrain dividend increase to finance its invents.

Early in 2014, the stock value of JD sports fashion was rising consistently having risen from price 282 by the end of October 2013 and closed and the estimated price of 507 by 31st December 2014 (London stock exchange, 2018). In the year 2015, its share value continued to rise at and closed at price 1041.01 by 31st December 2015 (London stock exchange, 2018). The value continues to rise drastically reaching the highest point within the five years at 1574.6 in October and sharply declining at the beginning of December same year to its five years lowest at price 319 pounds.

In the last one month, JD sport fashion shares have considerable declined up from 460 at the beginning of September and declining to 387.8 by the close of 22nd October this year (London stock exchange, 2018).

On the other hand, despite the increasing profitability for the JD fashions plc, dividends payout to the shareholders increased slightly as summarized in the table below

Table no2: data compiled from the London stock exchange (2018)

Financial performance in the last five years

To obtain a clear view of the financial performance of the company a summary of the key financial particular for JD sports fashion plc from 2014 to 2018 is outlined in the table below

Table no3: data adapted from JD sports fashion financial plc statements 2013-2018

JD fashion mainly generate its revenues in the UK, with other European countries following but only a few from the rest of the world as shown in the table below

Table no4: data adapted from JD sports fashion financial plc statements 2013-2018

A fact worth noting is that 79% of JD Fashions revenue is generated through its retail stores, followed by multichannel outlets at 14% and only 7% of the revenue generated through wholesale. The fact that JD fashion plc distribution channel directly deal with the consumer eliminating intermediaries increase its profit margin. The elimination of intermediary as a strategy helps to reduce the cost of their products. The sales growth has been consistently increasing in the last five years as presented in the table below

Table no5: data adapted from JD sports fashion financial plc statements 2013-2018

The company revenue has consistently increased in the last four years, moving from 592 million pounds in 2014 to 1549 million pounds by the end of 2018 financial year.

Graph no1: Data compiled from JD sports fashion financial plc statements 2013-2018

The graph above demonstrates the revenue growth in JD sports and fashion plc from the year 2013 to 2018

Financial analysis JD sports fashions for the last 5 years

Financial performance of an organization provides an essential knowledge of the effectiveness of the strategy adopted by the organization. By conducting a brief financial analysis of JD fashions plc provide essential information on the financial status of the company.

Inventory turnover

To get a better view on how the strategies used by JD sports fashion assist in enhancing efficiency in utilization of the organization assets. The table below present JD fashions turn over and cost of good figures in the last five years and 2015 as the base year.

Table no6: data adapted from JD sports fashion financial plc statements 2013-2018

Thus, in 2015 the opening inventory was 186 million and ended at 225 million pounds. Average inventory is 205.5 million pounds in 2015 when the cost of good was equal to 782,703 million pounds. Basing the inventory turnover on the average turnover in 2015, it is evident that the rate at which JD sports fashion replenish its stock continue to improve. JD fashion replenishes its stock more than three times per year. The increase in inventory turnover accompanied by increasing inventory is an indication of effective inventory management.

Receivable turnover

Obtained by dividing the JD sports fashion plc net income by average receivable.

Table no7: data adapted from JD sports fashion financial plc statements 2013-2018

The rate at which the revenues were totally collected from receivable accounts decreases drastically from 2014 at 56.31 to 21.61 times annual. The decreasing receivable collection rate may signal that JD sports fashions plc may have relaxed its stringent policy of debt collection.

Profitability ratio

Table no8: data adapted from JD sports fashion financial plc statements 2013-2018

On the profitability ratios, in the last five years, the company gross profit margin ranges from 10.87 to 6.4. The ratio has consistently decreased from 10.37 in 2014 to 6.67 in the JD sport financial year 2018. The decreasing margin indicates that the proportion of income spent on the purchase of goods is consistently improving. The improvement may be attributed to improved competitiveness and associated with economies of scale enjoyed by JD sports fashion plc. On net profit margin, JD sports fashion continue to improve considering that in 2014 the margin was at 9.2 and has risen with more than 5% attaining 14.9% in 2018 financial year.

Current ratio

By calculating the JD sports fashion plc current ratio, a clear view on the company liquidity strength. The current ratio is obtained by dividing JD sports fashion current asset with liabilities.

table no9: data adapted from JD sports fashion financial plc statements 2013-2018

Considering the current ratio performance for JD sports fashion plc in the past five years is relatively healthy with a ratio above one. Though the current ratio is not consistently stable in each year it is evident that if JD sports fashion undergoes liquidation its current asset will fully offset its current liabilities.

Debt-to-assets ratio

table no10: data adapted from JD sports fashion financial plc statements 2013-2018

In 2014 and 2015, the solvency ratio for JD sports fashion plc indicate that more than 50% of its assets were financed by debts. Although the ratio decreased, the dependence on liabilities remained relatively high at 50.9% and 48.96% in 2017 and 2018.

Debt-to-equity ratio

Table no11: data adapted from JD sports fashion financial plc statements 2013-2018

As indicated in the table above JD sports debt-to-equity ratio is relatively high, ranging between 1.96 to 2.97. Thus, in the case of liquidation, its shareholder equity is capable of clearing the total debts of the company.

Swot analysis

Evaluation of JD sports fashion growth drivers.

after the organization first hit a 100 million pounds in profit in 2015, the company profit level has grown with over 200 million pounds. Registering a rise of more than 200% in the consecutive three years.

one of the strategies attributed to the organization revenue growth is consistent innovation in the product offered by JD sports fashion. The corporate combine various products from various reputable brands. On the other hand, investment through acquisition has made the corporate broader. For instance, athleisure a subsidiary of JD sports fashion in Australia provides trend imports and streetwear for youth and young adults from local and foreign brands such as nude Lucy, Kappa and Superga.

Secondly, JD sports fashions have increased its investment in technology aimed at increasing service delivery and customer satisfaction. Increased technological used has improved service delivery as well as meeting the dynamics need of the consumers. The ability for customers to order their products online provide consumers with a convenient way to order JD sports fashion products. The success of the JD sports fashion in the venturing into the international market provides a platform for expanding its multichannel model and guarantee increase sale in future from the accessible global market. The increased popularity in the use of mobile apps and reliance on social media platform provide access to JD fashion products and hence increase organization sales from in-store (JD sports fashion plc, 2018). An additional benefit for using the online platform is that it provides customers with an opportunity to exclusive products that are not readily available in the organization stores (Grawel & Levy, 2015). By combining both digital and physical store retail the organization provides a convenient platform for the consumers to conduct sopping across the multichannel.

Another key driver of JD sports fashion growth is its online market model, through the acquisition the JD sports have to acquire control of online marketing websites in both domestic and foreign market. In collaboration with recognized brands in the apparel industry. The fact JD sports retail its product directly to the consumers enabled the organization to take control of its market and accelerate organic growth (Grawel & Levy, 2015).

To overcome competition and remain appealing the JD sports fashion has maintained its resilience in increasing new global brand suppliers. Increasing the brand portfolio provide a competitive advantage to the organization by ensuring that the organization products retaining their uniqueness and hence more appealing. Moreover, the JD fashions clearly differentiate their store compared to their major rival in the market to ensure that they remain unique and appealing for the shoppers (Grawel & Levy, 2015). JD sports fashions consider the action of partnering with the third-party brands as critical in organization expansion.

The management of JD sports ensures that the company stores main world-class standards as a strategy of increasing traffic to the showrooms. Within the past five years, the group has aggressively expanded its physical stores in both the UK and foreign countries. Combining both spaces and a wide range of exclusive products the organization has managed to improve the frequencies of customers in their stores. For instance, the opening of 20,000 sq. ft. In Liverpool, one in 2017 and 17,000 sq. feet in Arnade, Manchester the same year is a clear expression of the organization commitment in providing a unique shopping experience and exclusive products (JD sports fashion Plc annual report and accounts 2018).

Conclusion

By evaluating the financial performance of JD sports fashion in the past five years it's clear that the management has managed to maintain a high competitive ability for the company. The restrained dividend payout despite the increasing profit indicates the management resilence in expanding its market coverage through acquisition. Despite the huge capital investment as in various acquisition JD sports fashion liquidity ratio has remained relatively strong as indicated by its debt-to-equity ratio.

The future of performance of JD sports fashion plc remains promising basing on the aggressive market expansion in more than ten worldwide. Moreover, the improving global economy may slightly increase the profitability for the apparel industry (Nenni, Giustiniano & Pirolo, 2013). As forecasted by Deloitte (2018), the fact that European countries to be among the top consumers of premium apparel brands will provide will increase the organization profitability and venture into other viable global markets. The favorable exchange rate is expected to promote international consumption (Nenni, Giustiniano & Pirolo, 2013).

However, the Brexit uncertainty continues to pose a challenge for the UK based multinational organization accompanied by raising the cost of apparel produced pushed by increasing cost of raw materials and labor regulations (Nenni, Giustiniano & Pirolo, 2013).

References