Shares in Sports Direct, the embattled retailer founded and 55% owned by the billionaire Mike Ashley, have risen sharply after it announced an £89m share purchase plan.
The company said it would buy back up to 29.9m shares, or about 5% of the total, to reduce its share capital. Citigroup will conduct the buyback in the run-up to Sports Direct’s annual meeting on 7 September, where it wants to gain support from shareholders for further buybacks.
Sports Direct’s share price rose just over 9% to close at 281.1p after the announcement on Thursday.
The share price has fallen about 60% since August, with the company falling out of the FTSE 100 index of the UK’s biggest publicly listed firms after facing criticism over its treatment of workers, revealed by a Guardian investigation last year.
It has also had difficulties securing the acquisitions it needed to meet profit targets while sales growth has stumbled. The company issued its second profit warning in a year in March.
Last week, a parliamentary committee report into Sports Direct’s working practices found they were closer to those of a Victorian workhouse than a modern company, treating workers “without dignity or respect”.
Trade unions have been seeking the backing of City investors for a resolution to be put to Sports Direct’s AGM calling for a fully independent review of working practices at the retailer.
Sports Direct did not comment on whether Ashley would be selling any of his holding, but market watchers expect him to hold onto all of his shares.
If he does so, and Sports Direct buys back 5%, Ashley’s stake will increase to around 58%, which some see as history repeating itself.
Shortly after the group floated on the stock exchange in 2007, when Ashley sold 43% of the company to outside investors, the retailer’s shares slumped and it swiftly launched a share buyback, which propelled Ashley’s stake to around 70%.
Earlier this month, the firm said it would not be paying a bonus to 3,000 permanent staff after underlying profits fell to £381.4m, missing the company’s target of £420m in the year to 24 April. Ashley told the board he had no plans to take the company private, despite its disappointing performance.
Rival JD Sports has fared better. It said on Thursday that headline profit before tax for the year ending 28 January 2017 would be at the top end of the £170m to £190m range.
The chain has cashed in on demand for fashionable sports-inspired clothing known as “athleisure”, such as Beyoncé’s Ivy Park line, and the recent Euro 2016 football tournament gave it a further sales boost. Sports Direct has been selling down its stake in JD Sports.
