The Investment column: JD Sports loses out to rivals

John David Sports isn't the worst new issue of the last couple of years. But it's close. Priced at a top of the range 285p when it came to the market in October 1996, shares in the sports retailer have been a disaster. Yesterday's grim trading statement, showing collapsing sales and stock problems, dragged the shares down a further 16.5 per cent to a new low of 109p. Investors must be livid with John Wardle and David Makin, the two founders who netted a cool pounds 13m apiece from the float.

It is clear that in an increasingly competitive sports retail market JD Sports has proved the loser. While JJB Sports, Sports Division and Blacks Leisure power ahead, JD Sports has struggled. It has paid the price for drifting towards stocking too many secondary brands and losing its competitive edge as a more fashion-oriented alternative to more mainstream rivals.

Stock problems were one of the company's difficulties, with buying mistakes meaning that excess merchandise had to be sold off at discounted prices, crucifying the margin. Sales in the core business also seem to going through the floor. Like-for-like sales in the first half fell 8 per cent, albeit against tough comparisons. Current trading in the second half is even worse, with sales down around 10 per cent and margins still depressed by the slow moving stock.

All this makes one wonder just how the company managed to report a 10.4 per cent increase in pre-tax profits to pounds 5.5m in the half year to September. The extra profit must be coming from new store openings, although the company was playing these down yesterday and admitting that some were not achieving expectations.

Management has beefed up the group's buying and merchandising staff and is concentrating on a more fashion-oriented offering that will differentiate it from rivals.

With all these problems, it is worrying that JD Sports is persisting with its store roll-out programme. The company also admits the sports retail market is becoming increasingly competitive as rival groups march ahead with aggressive new opening programmes, pushing up rents.

On reduced full-year forecasts of pounds 10m the shares trade on a forward rating of just 8. That seems too low and if existing management does not improve shareholder value, it could be subject to a bid. Hardly one for widows and orphans but at these levels the shares could be worth a punt.