JD Sports stock slumps after £5m anti-competition fine

The JD Sports share price is struggling as the sports retailer deals with rising inflation and a £5m anti-competition fine. 

The JD Sports [JD] share price is continuing to slide backwards after the sports retailer and its competitor Footasylum were fined a combined £4.7m by the Competition and Markets Authority (CMA).

JD Sports’ share price has dropped 11.6% since the 14 February ruling from the regulator that it and Footasylum had breached an order that barred the two merged companies from exchanging commercially sensitive information.

JD Sports acquired Footasylum in 2019 for £86m, but last year the CMA ordered it to sell it on to another buyer due to concerns that the deal would lead to higher prices for consumers. It said the companies should remain independent and compete against each other as they would have before the deal took place.

However, it emerged that JD Sports boss Peter Cowgill and Footasylum CEO Barry Bown had held two meetings where they discussed financial details, store closures and contract negotiations. The JD Sports share price dropped 3.5% on the day of the CMA’s decision.

How has JD Sports responded to the fine?

One of the most obvious impacts of the decision has been JD Sports’ decision to delay its annual results. In a statement, it said this was to ensure its auditor, KPMG, would have sufficient time “to complete its global audit procedures and to allow the group to report on the outcome of the divestment of Footasylum Limited with greater certainty”.

It would also “enable the group to complete a review of its governance procedures and policies in light of the ongoing process to divide the current joint role of executive chairman and chief executive officer,” which is held by Cowgill.

The comment on Footasylum could raise concerns among investors about the sales process and whether the fine and subsequent negative publicity could impact its share price. The sale is also a blow to the group’s strategy, which had hoped Footasylum’s range would attract younger, trend-led shoppers.

The highlighting of the group’s corporate governance shortfalls amplified comments in the recent CMA ruling that neither company had put in place robust measures to prevent breaches of its order. “Both companies had severely deficient safeguards in place,” the CMA said.

There are dangers that the fine could result in a loss of business reputation and investor confidence in the group.

JD Sports’ share price performance

Alongside the delay to its annual results, JD Sports released a trading update. It showed that in the 22-week period to 1 January 2022, like-for-like sales were up more than 10% year-over-year. It said the positive performance had continued into January, and that full year results were likely to be ahead of expectations as a result.

It also said headline profit before tax and exceptional items for the year ended 29 January 2022 is now expected to total at least £900m. That would be up from £423m in the same period in 2021.

Generally, the stock has been helped by strong online demand as people tried to stay fit during lockdown and were able to dress down while working at home rather than in the office.

There are concerns, however, over the impact of rising inflation and what that will mean for prices and demand going forward. The company is also likely to have been hit by soaring fuel prices and supply chain squeezes. “The intensifying cost of living squeeze could mean many shoppers will face very stark choices going forward and new sports gear may be crossed off the shopping list,” said Susannah Streeter, senior international and markets analyst at Hargreaves Lansdown.

“The intensifying cost of living squeeze could mean many shoppers will face very stark choices going forward and new sports gear may be crossed off the shopping list” - Hargreaves Lansdown analyst Susannah Streeter

How do analysts feel about the JD Sports share price?

According to MarketScreener, analysts are still bullish on the stock, with a consensus ‘buy’ rating and an average target price of 262.5p. JD’s share price currently sits at around 149p at the close on 16 March.

Writing in the Motley Fool, Royston Wild says the JD Sports stock price has been badly hit by rising inflation and subdued consumer confidence. However, he says JD remains in pole position because it is the go-to place for casual fashion and benefits from the star power of heavyweight brands including Nike [NKE]. “Its ongoing global store expansion programme could deliver outstanding long-term returns,” Wild said. “Its popular online channel will produce huge rewards in the ecommerce age.”