RCG’s Hype DC acquisition ‘strategic’

adidasBrokerage firm Bell Potter is bullish about Athlete’s Foot owner RCG Capital following its $105 million deal to buy sneaker chain Hype DC.

A report by Bell Potter analysts says the acquisition has significant strategic merit and gives RCG scope to expand and to open new retail formats.

Bell Potter continues to recommend RCG as a buy and has upgraded its outlook on the footwear merchant’s share price.

The firm now expects RCG’s share price to hit $2.14 in 12 months time, compared to its previous forecast of $2.

“With the acquisition of Hype, RCG now has three market-leading multi-brand retail platforms that offer it significant leverage to pursue growth opportunities,” the report said.

RCG’s shares closed 24.3 per cent, or 35.5 cents, higher at $1.815 on Monday, following the Hype deal announcement and the company’s stronger full-year earnings outlook.

However, its share price has since pulled back by two cents, or 1.1 per cent, to $1.795 at 1400 AEST.

The acquisition, set to settle in August, will add 60 stores to the group, and comes 18 months after RCG acquired the Accent Group – distributor of Vans, Skechers and Dr. Martens and owner of the Platypus retail chain.

RCG expects FY16 underlying earnings before interest, tax, depreciation and amortisations (EBITDA) to hit the top end of its guidance range at $60 million.

Underlying earnings in FY17, including the Hype DC deal, are expected to come in at $90 million.

Hype is expected to generate same-store-sales growth of five per cent in FY17, higher than Athlete’s Foot’s four per cent forecast, while Accent Group’s same-store-sales are tipped to rise seven per cent.

“Hype is an outstanding business that is perfectly aligned to RCG’s strategic objectives,” said Hilton Brett, RCG CEO.

Brett said bringing Hype into the RCG family will “unlock benefits and opportunities for the stakeholders of both businesses including staff, suppliers, customers and RCG shareholders.”

RCG said there will be no changes to the existing operating structure of either of the existing RCG businesses or Hype in the short term.

The company also confirmed Danny and Cindy Gilbert, who founded Hype, will continue to manage the business. Danny Gilbert has been appointed by RCG as its new executive director.

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