Over the last year, shares in retailer JD Sports (LSE: JD) have soared over 50%, following huge rises in revenue and profits. However, yesterdays Channel 4 documentary, in which staff claimed that conditions in itsRochdale warehouse were worse than a prison, threatens to put an end to the companysstatus of market darling.
Should investors see this as a sign to take profits, or just a temporary blip, albeit one that any retailer would want to avoid, particularly at this time of the year?
Sacked for sitting down
Last nightsdocumentarycertainly didntmakefor pleasant viewing.According to some of the 1,500 staff employed there, a punitive 3 strikes and youre sacked policy operated at the Rochdale site.
In addition to having to endure airport-style security checks and random searches, workerswere also threatened with dismissalif they sat down during shifts, and those employed throughagencieswere paid below the minimum wage. Revelations such as these have led Chair of the Business Select Committee, Iain Wright MP, to suggestthat the companyis treating its workers like cattle.
In response, JDSportsissued a statement this morning saying that it was deeply disappointed and concerned by the footageand would be launching an investigation into the matter.The company stressedthat all supervisory and security staff at the 24/7 facilitywould be retrainedas a matter of urgencyto ensure that its policies were correctly implemented.
JDSportsalso denied operating a strike policy or that workers could be immediately dismissed.The 3bn cap businesssaidthat it would readilyopen itsdoors to an appropriate independent body should it wish inspect the companysfacilities.
JD Sportsisnt the first company to have its working practices questioned, of course. Online giants Amazon andASOS,as well asJD Sports biggest competitor,Sports Direct (LSE: SPD) have all been severelycriticised over the treatment ofemployees in recent times.The question is, shouldtodays responsebe enough for shareholders?
Time to top-up?
No company is immune to setbacks its how itresponds that is key. By immediately outlining how it intends to tackle the problem rather than engaging in a public spat with politicians, JD Sportshas at least shown acommitment to ensuring that its staff are treated with the respect they deserve. So long as management keeps its word, I view any slide in JD Sports share price as an opportunity for prospective investors to build a position. Those already holding may even wish to top up.
That said, I sincerely doubt that any dip will rival the 50% plunge experienced over the last year by Sports Direct. Although some investors may wish to disassociate themselves from anycompany following such anaffair, JD
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Sports management seem better versed in public relations and recognise the importance of taking responsibility for turning things around. Contrast this with Mike Ashleys initial refusal to appear before a Commons Select Committee.
Trading on a price-to-earnings (P/E) ratio of just over 20, shares in JD Sportsare certainly more expensive to buy than those of Sports Direct (on a P/E of just 7). Indeed, those focused on finding value and/or taking contrarian positions will view the latter as a far more tempting opportunity.Nevertheless, given the somewhat unpredictable behaviour of itsmanagement team, I know which retailer Id back to recover quicker, however disagreeableyesterdays news was.
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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended Sports Direct International. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
