Confirming a rumor that has been going on in the market for more than half a year, JD Sports Fashion has announced that it is buying Champion Sports, the second- or third-largest Irish sporting goods retail chain. Irish competition authorities must still approve the deal, which is expected to be completed within about three months. John Quinn will continue to lead Champion's management.
The successful British retail group, which is controlled by Pentland, has apparently waited for the Irish economic recession to put pressure on the owners to sell the business at a nominal price. Reports indicate that JD's total investment will be around €20 million if the deal is completed. A public statement says that JD is going to provide a €17.1 million advance as a secured loan to Champion so it can pay off outstanding debts, but a spokesman for the company says Champion is not in a bankruptcy situation where it would have to find a settlement with its creditors. The statement also says that the refinancing program doesn't include lease commitments of €2.5 million, but the spokesman could not say what will happen to those leases.
According to JD, Champion has been the victim of the recent decline in the Irish economy as well as ?an inflexible fixed property cost base which we intend to continue to address.? These factors led Champion to post an operating loss of €1.8 million and a pre-tax loss of €4.9 million in 2009 on revenues of €54.0 million, lower than the €60 million that we have previously estimated for the year and lower than Elverys' sales of €57 million.
The country's biggest sporting goods retailer, Lifestyle Sports, whose sales in the Republic of Ireland alone were estimated at €101 million, also suffered from these problems, leading it to get out of the Czech Republic. However, JD says that its acquisition of Champion will be accretive to profits in future years after investments in the store portfolio and the implementation of operational synergies. Even without the takeover, Champion has reportedly started to make a profit again, following several management changes in the last two years.
As it has done in France with its acquisition of Chausport, JD will be able to leverage its buying power to improve Champion's gross margins. Synergies can be obtained in terms of logistics. Champion has 22 stores at premium locations in downtown areas and shopping centers Ireland. Curiously, like JD more recently, it tried to expand into France many years ago, but the initiative ended up in failure.
For its part; JD has so far set up only eight stores in the Republic of Ireland. As in France, it plans to develop the Champion and JD banners in Ireland separately, with a distinct offer and market positioning. Its first three JD stores in France are performing well and a fourth one is slated to open shortly in Marseille. The company is reportedly looking at setting up five JD stores in high-traffic locations every year.
Founded in 1992 and based in Dublin, Champion Sports, which has nothing to do with the sports apparel brand by the same name, has gone through several changes of ownership. A consortium of businessmen bought the chain in 2007 for a reported €60 million from a property developer, Paddy McKillen, and an Irish retailer, Paul McGlade. Its gross assets are currently estimated at €36.2 million.
