Sports Direct shares soar on profit jump
Sports Direct’s shares soared this morning as the retailer posted a jump in profit and revealed that it was beginning to see the “green shoots of recovery” at House of Fraser.
The figures
The company’s share price surged more than 30 per cent to 470p after the high street store said reported profit before tax increased 160 per cent to £193.4m in the 26 weeks to 27 October.
Group revenue increased 14 per cent to £2.04bn, following a 79.2 per cent jump in premium lifestyle due to new Flannels stores and a full period contribution from House of Fraser, while UK sports retail sales increased 6.2 per cent.
Gross margin for Mike Ashley’s group increased 230 basis points to 43.8 per cent in the first half of the year.
Read more: Sports Direct to rebrand as Frasers Group
Underlying Ebitda increased 21.8 per cent due to growth in premium lifestyle and european retail divisions.
The group announced that net debt decreased to £254.4m from £378.5m at 28 April 2019.
Why it is interesting
Ashley doubled down on his description of House of Fraser as “terminal”, saying that ahead of Sports Direct’s acquisition the department store business was “dead, finished, destroyed”.
The Sports Direct founder said it was likely that more unprofitable House of Fraser stores will close over the next 12 months. However, chairman David Daly said the company is beginning to see “green shoots” of recovery” as the business is integrated into the group.
Ashley said: “It was, and it is only through the incredible efforts of those within the Sports Direct Group, including the remaining House of Fraser teams, that we are tackling these problems and trying to build a business with a future, a future for Frasers that is hopefully “bright”.
Ashley also used the publication of the results to lash out at politicians and regulators after his share in Debenhams was wiped out when it was taken over by a consortium of investors and the alleged fraud at Goals Soccer Centres.
Read more: Sports Direct appoints new auditor
He also took a swipe at business rates, saying the regime is “clearly helping to kill much of what remains of the UK high street”, Jeremy Corbyn and shareholder advisory firm Pirc.
Shareholders will vote today on proposals to rebrand the group as Frasers.
“With respect of the Belgian tax demand Sports Direct have said that they are working with Belgium tax authorities and that they expect to conclude the review early in the New Year, but so far all VAT appears to have been correctly accounted for. The company also confirmed RSM as their new auditor,” Michael Hewson, chief market analyst at CMC Markets said.
“Investors also welcomed a positive update to guidance, something that management were unable to give at the end of the last fiscal year due to the uncertainty around the Belgian tax demand. Group underlying Ebitda is expected to grow between five per cent and 15 per cent to between £356.4m to £390.3m for the end of year ending April 2020.”
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown: “Sports Direct has pulled off a mild Christmas miracle. Despite lamenting the terminal nature of House of Fraser previously, the group now sees specks of light at the end of the tunnel.
“The department store is pretty much fully integrated into the Sports Direct family, meaning the stage is set for future growth. But there’s no guarantee of a happy ending, some House of Fraser stores are still not making any money despite paying no rent.
“That’s why Sports Direct has hinted it’ll be closing further stores this year. It’s too soon to tell if trimming the excess will be enough to get the chain back to full health.”
Joe Healey, investment research analyst at The Share Centre, added: “Overall, these results are extremely promising for a group operating in a difficult market environment and one that has suffered well publicised controversy in recent years.”
What Sports Direct said
Mike Ashley said: “At the full year FY19 results, we concluded we could not reasonably predict where our FY20 results were going to land based on the uncertainty caused by the House of Fraser acquisition and the “significant operational and investment issues we are trying to rectify based on the appalling mismanagement of House of Fraser, prior to its acquisition by the Sports Direct Group, that led to its downfall.
“As noted in the Chairman’s statement and below, House of Fraser is all but fully integrated into the Group, and is a work in progress to fix. The longer-term estate is still in the main to be concluded upon. However, given the seasonality of House of Fraser, something in the longer term we hope to address is the reliance on the Christmas period, and the fact our House of Fraser store estate – at least over this Christmas period 2019 – is secure means we are able to give Group guidance as we are confident in the outturn including House of Fraser.”