Sports Direct shares fall as it unveils 57 per cent profit hit on weak sterling

Shares in troubled retailer Sports Direct fell as much as six per cent in early trading, after it revealed pre-tax profits had halved in its first half thanks to weak sterling.

Underlying profit before tax dropped 57 per cent to £71.6m from £166.4m, it said, while underlying earnings before interest, taxation, depreciation and amortisation fell 33.5 per cent to £145.3m. 

The retailer pointed at the drop in sterling, increases in its inventory, pricey international leases and investment in staff. 

Chief executive Mike Ashley added the weak pound is likely to continue to hurt business for Sports Direct, which is working to become the "Selfridges" of sports retail.

After chief financial officer Matt Pearson stepped down in October (after just over a year), the company said this morning it has appointed Herbert Monteith of its finance team as the interim head of finance and a new non-executive director, David Brayshaw, a former banker at Barclays Capital, HSBC, Citigroup and Pilkington.

Former chief executive Dave Forsey also left the company in September, followed closely by Pearson, who was blamed for Sports Direct's failure to hedge for currency movements.

It also emerged that Sports Direct will be buying a new corporate jet for $51.1m (£40.4m), despite the falling profits.

George Salmon, equity analysts at Hargreave Lansdown, said: "The eye-catching number is the 610 bps fall in UK margins, primarily driven by adverse currency movements over the half. While hedges are now in place for 2017, the group was unhedged going into the period. The sharp drop in sterling therefore caused a real-time hit to the group’s buying position."

"The company is blaming everyone else and it’s true that negative PR of this scale is very hard to shake. But Sports Direct has had lots of chances to get its house in order and is paying the price today for failing to really overhaul its corporate governance," said Neil Wilson, senior market analyst at ETX Capital.

"Investors are not impressed with the company’s performance or top management and the stock has tanked."

The board will also appoint a "worker's representative" to the board after it was roundly criticised in a report by MPs for its treatment of warehouse staff. The report, published in July, branded the conditions at its Shirebrook warehouse as akin to a "Victorian workhouse". 

The retailer did not cover itself in glory when, in November, it was accused by MPs who paid a surprise visit to Shirebrook of spying on them with a camera hidden near a plate of sandwiches. 

Ashley said the last six months have been "tough" for the company's people and performance.

Our UK sports retail business continues to be the engine of Sports Direct, but our results have been affected by the significant deterioration in exchange rates, and our assessment of our risk relating to our stock levels and European stores performance.

The company is working to rebuild worker moral by replacing its "six strikes" policy with a standard grievance procedure and exploring alternatives to the zero hours contracts. 

Shares fell as low as 295.1p as the market opened, before edging up to 299.3p, 4.9 per cent down.