While many companies within the FTSE 100 index have demonstrated resilience, with the index itself showing a notable increase over the past year, two prominent stocks, JD Sports Fashion and Haleon, have recently experienced significant underperformance. This analysis delves into the challenges facing these companies and explores whether their current struggles present a buying opportunity for investors in September.
JD Sports Fashion: A Fading Retail Crown
JD Sports Fashion, once a darling of the stock market, has seen its share price plummet by 59% over the last five years. This dramatic decline has brought the company, often referred to as the ‘King of Trainers’, close to a potential demotion from the FTSE 100 to the FTSE 250 index. The reasons behind this fall from grace were highlighted in the company’s recent second-quarter trading update, which covered the 13 weeks leading up to August 1.
The update revealed a challenging retail environment characterized by “consumer pressures,” a “promotional market,” and a general decrease in store footfall. Particularly concerning was a 6.8% decline in like-for-like (LFL) sales in North America, a crucial market accounting for over a third of JD Sports’ revenue. While the UK and Asia Pacific regions showed modest growth of 0.8% and 1.4% respectively, these gains were insufficient to offset the overall group LFL sales decline of 3.1%.
Key Challenges and Dependencies
Further compounding JD Sports’ difficulties is the “ongoing product cycle evolution across key brand partners.” A significant portion of JD Sports’ sales, over 40%, is derived from Nike. The performance of JD Sports is therefore closely tied to Nike’s ability to revitalize its brand and maintain sales momentum. For JD Sports’ stock to rebound, several critical factors need to align:
- A resurgence in Nike’s growth trajectory.
- An easing of the global cost-of-living crisis.
- A reduction in youth unemployment rates.
Currently, there is limited confidence in the immediate improvement of these conditions. Despite these headwinds, JD Sports’ stock appears inexpensive, trading at approximately seven times its forward earnings. If the company can successfully navigate its challenges and resume sales growth, there is potential for a substantial increase in its share price. JD Sports benefits from a strong brand presence and a global operational footprint. However, recent downward revisions to the company’s full-year pre-tax profit guidance—from a range of £750m-£850m to £700m-£800m for FY27—temper enthusiasm. Furthermore, the dividend yield remains low at just 1.43%. Until the broader consumer economic landscape improves, investing in JD Sports presents considerable risk.
Haleon: A Healthcare Stock Lacking Momentum
In contrast to JD Sports’ dramatic fall, Haleon, a consumer healthcare company, has experienced a more subdued performance. Since its spin-off from GSK in July 2022, its share price has risen by approximately 19%. However, this growth significantly lags behind the FTSE 100 index, which has climbed 48% over the same period. Haleon’s share price has only seen a modest 3% increase over the past year.
The primary concern with Haleon is its perceived lack of growth. The company operates in mature markets for its well-known products, including pain relievers like Advil and Panadol, and toothpaste brands such as Aquafresh and Sensodyne. These established brands face intense competition from lower-priced supermarket own-label alternatives. Personal purchasing decisions for these items are often driven by price rather than brand loyalty, raising questions about long-term pricing power.
Growth Prospects and Valuation
Revenue projections for 2026 indicate a standstill, with expected figures mirroring those of 2023 (£11.3bn). While Haleon is targeting high-single-digit adjusted operating profit growth in the medium term, this forecast is less compelling given the flat revenue outlook. The company might appeal as a defensive stock within the consumer staples sector, offering some stability in uncertain economic times. However, its dividend yield is relatively low at 1.95%, and the stock does not appear to be undervalued, trading at nearly 17 times forward earnings.
Conclusion: Weighing the Risks and Opportunities
Considering both income potential and share price growth, other opportunities within the FTSE 100 may currently offer more attractive prospects than JD Sports Fashion and Haleon. JD Sports faces significant operational and macroeconomic hurdles, while Haleon’s growth narrative appears limited in the near term. Investors seeking income and capital appreciation may need to look beyond these two struggling FTSE 100 constituents for the time being.
