Retailer JD Sports Fashion (LSE:JD) has been an investor favourite in recent years. Organic growth and acquisitions have enabled the company to expand quickly. Over the past year, the JD Sports share price is up almost 18%. However, it has shed 14% over the past four weeks. I think there are a few reasons for this that I need to be aware of, especially if I’m considering buying now.
The final battle with the CMA?
First up is the battle with the Competition and Markets Authority (CMA) over the acquisition of Footasylum. The deal was first announced back in March 2019, but it has been investigated ever since. Concern stems around whether the deal would be negative for Footasylum customers due to JD Sports also being a large footwear retailer.
In November, the final ruling came through that JD Sports would have to sell the business. Importantly, the deadline to appeal this decision has recently passed. Therefore, although JD Sports disagreed with the decision by the CMA, it appears that it won’t be pursuing the legal battle further.
This is one reason why the JD Sports share price has fallen. The added benefit of having Footasylum under the brand umbrella would have been substantial. Now, those gains are lost and Footasylum becomes direct competition for JD Sports too.
Worries around trading restrictions
The second reason why I think the shares are down is due to the Omicron variant. Concerns around this variant have shot up over the past few weeks. Restrictions have been tightened here in the UK, with many thinking that more are coming. This will hurt the company if there’s lower footfall on the streets, or if stores have to close.
Even though the business does have a good online presence, it still operates 400 physical stores in the UK and Ireland. Clearly, there will be some negative impact on revenue that could be potentially lost from these stores.
At the moment, it’s impossible to say how much could be lost here. Yet I think that investors are pricing in some concerns via the lower share price of the past month.
Monitoring the JD Sports share price
The final point I’d note is that the business is performing well financially at the moment. My colleague Rupert Hargreaves wrote in more detail about the strong H1 trading results. Along with revenue and profits swelling, the company has a strong net cash position of just under £1bn.
Therefore, I do think that the recent slump in the share price could be somewhat overdone. Granted, the results are in the past. But I think that concerns around the CMA and Omicron aren’t the end of the world for JD Sports by any means. With this in mind, I’m putting the stock on my watchlist, to consider buying some shares.
