Investors in FTSE 100 companies have had a rough-and-tumble ride of late, with the market currently sitting in almost the same place as it was 12 months ago.
However, for those investors in UK retail powerhouse JD Sports Fashion (LSE:JD), it has felt like they were in a race to the bottom, with its share price falling by over 50% from its November 2021 peak of 234p to a sobering 103p last month.
JD Sports has been a consistently outstanding performer in the retail sector over the last 10 years, so what has caused the collapse in its share price over the last nine months?
Take a quick search through the news and you will not have to look far before you see stories about JD Sports’ acquisition of its competitor Footasylum in 2019 for £90m, which has since been the subject of a Competition and Markets Authority (CMA) investigation into corporate governance practices.
As a result of the CMA investigation, JD Sports was instructed to sell Footasylum in November 2021, which triggered the freefall in the company’s share price. This was followed in February 2022, by the CMA fining both JD Sports and Footasylum £5m each, after its investigation concluded that the chairmen of both companies “exchanged commercially sensitive information”.
Finally, following its own internal governance review, JD Sports announced in May that its long-standing chairman Peter Cowgill would be standing down with immediate effect. Earlier this month Andrew Higginson, the former chairman of Morrisons, became the new chairman of JD Sports, charged with returning the company to its former glory.
Whilst the Footasylum saga and the resulting CMA investigation and fines have clearly damaged market sentiment towards JD Sports in recent times, I am keen to understand how the company has actually performed as a business during these testing times and whether it has been accurately reflected by the falling share price.
JD Sports has had a chastening few years of negative headlines relating to corporate governance shortfalls under the previous regime, resulting in market support for the company being hard to find. However, behind the headlines, JD Sports has continued to focus on what it is good at, which is working with high-end sport fashion brands to deliver exactly what their customers want.
Last month JD Sports finally released its full year results, delayed from February, and it has to be said that the results were welcome news for its shareholders. Against the previous year’s business performance, JD Sports’ revenue increased by 40%, profits doubled and the number of stores across the group increased by over 25%.
The market has not been slow to react to the recent JD Sports results, lifting its share price by 30% since they were published a month ago. Although battered and bruised over the last 12 months, JD Sports has continued to do what it does best by continuing to deliver outstanding business performance, but it is doing it now with a heavily discounted share price.
JD Sports looks like a FTSE 100 star that is priced too cheaply, so I have added it to my watch list.
