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Sports Direct signals trouble ahead

Sports Direct shocked the market this morning when it announced a delay in its annual results, so much so shares dropped by 15%. 

The news came as a surprise in part because the firm’s chief exec, Mike Ashley, had been heralded in some quarters as the "saviour" of bricks of mortar. Not least after buying a stake in ailing businesses such as House of Fraser, which he'd promised to turn into the "Harrods of the high street."

Sports Direct said in a statement: “The reasons for the delay are the complexities of the integration into the company of the House of Fraser business, and the current uncertainty as to the future trading performance of this business.” It also blamed increased scrutiny by the financial regulator of audits, including its auditor Grant Thornton. 

It did not give a specific reason for the delay but said there were "a number of key areas" that "could materially affect the guidance given in Sports Direct's announcement of 13 December 2018."

The company now expects that its audited results will be published between 26 July 2019 and 23 August 2019.

Richard Hyman, retail consultant, said while it was not unusual for firms to delay their results, to do it just days before they were due out is surprising. “Whatever the announcement is, it’s unlikely to be good news,” he tells Essential Retail

Although when Sports Direct announced interim results, it revealed House of Fraser lost £31.5 million, Hyman cautions against solely laying the blame on the acquisition. Trade may have also turned down at its core business, too.

“The starting point that we all know is that retail is going through unprecedented turmoil. And there is virtually no company out there that isn’t having to run much faster to stand still."

One problem with Sports Direct, he notes, is that it doesn’t tend to keep the market informed as to what’s going on beyond its minimal regulatory obligations, which makes speculation difficult.  

Jonathan Pritchard, analyst at Peel Hunt, said while Sports Direct may have been overwhelmed how much work the reporting for the enlarged group would take, and the House of Fraser business does appear to be of concern, the bigger worry could be a potential downgrade in profits to its core business. "That is a concern as Sports Direct is the cash generator for making acquisitions."

He added: "Sports Direct has been out maneuvered by JD [Sports] over the last 10 years...Now there is a limited overlap between the products, and anything that could have been describe as exclusive is at JD. Product allocation has continued to favour JD, who have built up a band of loyal followers. And maybe the service culture hasn't changed enough at Sports Direct, which was never great." 

However, he said that although its website "could be more state of the art" Sports Direct still drives a substantial amount of revenue from online - so it isn't necessarily that the business has fallen behind by failing to keep up its digital offering. 

Ashley may have also stretched himself too thinly with the raft of acquisition he has made and his fight with the Debenhams' board, he notes. 

If that is the case some might observe it is time he concentrated on getting his own house in order.

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