Like many growth stocks in 2022, JD Sports Fashion Plc (LSE:JD) shares have plunged over 50% in the last 12 months.

Yet that hasn’t deterred its long-term performance, with the stock still in the green by 35% over the past five years. And since its listing on the London Stock Exchange back in 1996, the stock price has exploded by an impressive 3,200%, even after the wobbly performance this year.

With consumer spending taking a massive blow courtesy of rising inflation, it’s been a rough couple of months for the FTSE 100 business. But in the long run, is management’s strategy still intact? And if so, should I be considering it for my portfolio today? Let’s take a closer look at this business.

What does JD Sports Fashion do?

JD Sports Fashion, commonly known as JD Sport or JD, was founded in 1981 with its headquarters in Bury, Greater Manchester. Note it’s critical not to confuse JD Sports Fashion shares with the Chinese e-commerce giant, JD.com Inc.

The company’s vision statement is to “Connect Globally, Inspire Locally, Empower Individually”. In other words, the group seeks to inspire the emerging generation of globally-minded consumers through a connection to the universal culture of sport, music and fashion.

So what does it do? The firm is a sports fashion retailer of casual and branded sportswear and footwear. Its multi-channel business model combines physical and digital sales solutions to give customers a seamless in-store and online shopping experience.

The enterprise is divided into two segments:

• Sports Fashion – Consists of 17 brands catering to different athletic attire, including JD, Size?, Finish Line, Shoe Palace, Footpatrol, Sprinter, and Scotts, among others.
• Outdoor – Consists of nine brands selling specialist outdoor apparel for activities such as camping, hiking, mountain climbing, etc. Its leading brands include Blacks, Millets, GO Outdoors, and Naylors.

In addition to selling its own branded products, JD Sports is also a reseller of other world-class brand labels such as Nike, Puma, Adidas, and Under Armour, among others.

Its inventory portfolio also consists of private labels like Pink Soda and Supply & Demand to further elevate the group’s customer experience.

In total, JD has around 3,400 stores under its umbrella spanning across 32 territories and employing more than 73,000 people.

JD Sports shares: Half-year results and key financial metrics

As I’ve previously mentioned, the business has been on a stellar run since its original listing as a public company. And today, its market capitalisation stands at a sturdy £5bn.

During that time, there were multiple periods of temporary weakness as economic environments shifted. Yet management has demonstrated its ability to adapt and thrive during these storms.

In fact, the revenue stream has increased for seven consecutive years, even during the height of the pandemic. In my opinion, that’s quite an impressive feat.

Looking at its latest interim results for its 2023 fiscal year ending in January, JD generated £4.42bn in sales. That’s up from £3.89bn a year ago, with gross margins remaining stable at 48.5%.

In other words, the group has shown resilience to the negative impact of inflation so far. But non-executive chairman, Andy Higginson, has pointed out that the second half of the year is the more material trading period, and there remains a lot of uncertainty ahead.

However, while gross profitability remains strong, operating margins and, in turn, earnings have suffered. With shipping and logistics costs rising, operating profit came in at £332.9m, down from £396.8m.

This seems to be what’s spooked investors. With logistical expenses being largely out of management’s control, further external cost increases could send profits down even further in the near term. With that in mind, I’m not surprised to see JD Sports shares take a beating.

Risks to factors to consider

Every investment carries risk regardless of how encouraging or promising an enterprise is. JD Sports shares are no exception.

I’ve already highlighted its profitability weak spot regarding logistics. But there are additional threats to consider.

First and foremost, the fashion industry is notoriously fickle. Consumer tastes and trends are constantly changing. And companies that fail to correctly predict changes in the wind, regardless of size, almost always get left behind.

After all, there’s no shortage of similar companies in the clothing space, especially when it comes to sports fashion.

With no meaningful switching costs, retaining a high level of brand loyalty is extremely difficult. And that threat is only amplified when discretionary household spending slows as consumers search for cheaper brands.

In other words, a failure at JD Sports creates opportunities for its competitors such as Sports Direct (Owned by Frasers Group Plc), Schuh, or even Footasylum – a footwear brand it recently sold from its portfolio to Aurelius Group.

The firm is also dependent on external partners like Nike and Adidas to supply products to stock its shelves. Yet these relationships, while unlikely, could fall apart in the future, potentially compromising its leading Sports Fashion division.

Are JD Sports shares a good investment?

One of the best times to buy a stock is when its valuation has plummeted despite the underlying business being financially sound with a promising long-term future.

This is the core meaning of the famous quote by Warren Buffett, “be fearful when others are greedy and greedy when others are fearful”.

In my opinion, I believe this is exactly what’s happened with JD Sports shares. The business has seen its market cap cut in half on valid concerns bringing the price-to-earnings P/E ratio to a modest 15 times.

However, the problems plaguing profitability ultimately stem from short-term supply chain disruptions that are slowly being resolved.

There obviously remain plenty of challenges ahead as the company enters the second half of its financial year. But management appears to be confident in its future performance, reaffirming full-year guidance to be in line with the record performance seen a year ago.

That, to me, makes this business worth considering for my personal portfolio. And I may decide to add some JD Sports shares in the future when I have more capital at hand.

Prosper Ambaka does not own shares in any of the companies mentioned in this article. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.