Mike Ashley has said more House of Fraser stores will be forced to shut unless the government undertakes a fundamental review of the business rates system, which the Sports Direct boss criticised as “broken and unworkable”.
Ashley said the current rates regime “is clearly helping to kill much of what remains of the UK high street” and that large stores were coming under particular pressure from the property-related tax.
“We cannot keep loss-making stores open,” Ashley said. He would not say how many stores might close but said a decision would be taken within months. Seven department stores have closed since Sports Direct bought House of Fraser out of administration in August last year, leaving 52 branches.
Sports Direct formally changed its name to Frasers Group at a shareholder meeting on Monday.
Ahead of the meeting, Ashley revealed that Sports Direct expects to increase profits by up to 15% this year after reduced losses at House of Fraser.
Ashley’s retail empire forecasts profits of up to £390.3m for the year to April 2020 after underlying pretax profits increased 58% to £101.8m in the first half. Losses almost halved to £15.9m at its premium lifestyle business, which includes the department store chain.
The company shocked the City in July when it said it would not be able to estimate annual profits because of an unexpected €674m (£562m) Belgian tax bill and dire trading at House of Fraser.
Sales for the half year to 27 October rose 14% to £2bn, largely as a result of the inclusion of House of Fraser and growth at Flannels, the group’s designer fashion chain. Excluding acquisitions, revenue at the core sports business fell 8.6%.
David Daly, the chairman of the group, said the strategy of “elevating”, or moving towards more upmarket products and improved stores, was working.
He added: “We are hoping that the political waters will be calmer in the coming months, which will allow us to move out of this period of market unpredictability. ”
The results were well received in the City, sending Sports Direct shares racing ahead by 27% to 459p. Four years ago they were trading at more than 800p.
Ashley said on Monday he wanted to introduce a new staff bonus scheme of about £100m, which would not include himself or the board. He said the scheme would include thousands or workers but would not include those on zero-hours contracts, who make up more than half of store staff and most of those employed in the company’s warehouse.
He said he wanted the scheme to make about 50 people millionaires and hundreds would receive £100,000 each. “We want to take people on the journey with us,” he said.
Meanwhile, Sports Direct said it did not expect the potential Belgian bill to lead to “material liabilities” after the company brought in accountants from PricewaterhouseCoopers to carry out a review. All the required information has been handed to the Belgian tax authorities, who expect to conclude a review of the main part of the bill – amounting to €491m – in the new year.
But Monday’s statement to the City raised potential new concerns for Sports Direct’s corporate governance critics. The company said it had signed an agreement with Ashley’s daughter Matilda for rights to Sport FX cosmetics. A design company led by Nicola Murray, the mother of Michael Murray – the partner of Ashley’s elder daughter Anna – was also paid for work on some of the group’s properties.
Michael Murray, Sports Direct’s “head of elevation”, was himself paid £4.3m on top of £5m in same period last year. Although not an employee of Sports Direct, Murray acts as Ashley’s righthand man, overseeing the revamp of Sports Direct stores and expanding Flannels.
In a typically wide-ranging and lengthy statement issued to the City, Ashley took aim at a string of targets including the former management of House of Fraser, Debenhams and Goals Soccer Centres, as well as Jeremy Corbyn and other MPs, regulators and advisory firms.
