Sports Direct has delayed the publication of its annual financial results, warning that it could miss profit forecasts amid uncertainty over the performance of House of Fraser.
Shares in the retail group, controlled by the Newcastle United owner Mike Ashley, fell nearly 10% to 238p, their lowest level this year, as analysts suggested the company was struggling to cope with a string of acquisitions made in the past 18 months.
Sports Direct said it was not ready to publish its results for the year to 28 April on Thursday, as previously planned, for several reasons, including: “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.”
The company said it believed its accounts and their audit were at “an advanced stage. However, there are a number of key areas to conclude on which could materially affect the guidance given in Sports Direct’s announcement of 13 December 2018.”
Mike Ashley’s highly acquisitive Sports Direct group is struggling to digest a number of takeovers. Here are some of the most recent deals involving Sports Direct, including the acquisition of large stakes in other retailers.
House of Fraser
The department store has been struggling since Sports Direct bought 58 sites out of administration for £90m in August 2018, with Dundrum in Ireland acquired later. It now trades from 55 sites, with Hull, Altrincham and Birkenhead set to close. The branch at Lakeside in Thurrock, Essex, is under review as owner Intu plans a housing development. Several more stores are expected to close after Christmas.
Evans Cycles
The specialist bicycle retailer trades from 56 stores after Sports Direct bought 62 stores out of administration in October 2018.
Sofa.com
The online furniture retailer was bought out of administration in February 2019. The retailer has nine showrooms and trades in 12 House of Frasers, up from eight on acquisition.
Game Digital
Currently finalising a takeover bid that values the retailer and gaming arena group at just over £52m. The company, which has 274 stores in the UK and 269 in Spain, and 21 gaming arenas, is set to delist later this summer.
OTHER INVESTMENTS
Goals Soccer Centre
Sports Direct owns an 18.9% stake that cost about £15m to build up but is now worth £3.9m. Shares in the five-a-side pitch operator, which has 49 sites, were suspended in March and it is considering a sale as discussions continue with tax authorities over an unpaid VAT bill. The company was worth £20.5m when shares were suspended but has debts of about £29m.
French Connection
Sports Direct has spent £10.4m on a 27% stake in the fashion chain, which is currently worth £9.8m. French Connection has been considering a sale since October 2018 after a period of poor trading. The fashion retailer has said sales at established stores fell 6.8% last year, when it made a pre-tax loss of £9.3m. The results of a strategic review are not expected until September.
Findel
Mike Ashley’s group has invested nearly £63m building up a 37.8% stake in the online retailer, which is now worth £79m. But Findel’s board recently advised investors to reject a low-ball offer from Sports Direct for the rest of the shares it did not own, which would have valued the company at £140m.
Debenhams
Sports Direct spent more than £150m on building up a near-30% stake in the 165-strong department store chain, which collapsed into administration in April. Ashley fought a bitter battle for the control of the group, which is now owned by a consortium of hedge funds and banks and set to close 22 stores in January after winning support from landlords for a rescue restructure. Ashley, who was a supplier to Debenhams, which housed a few Sports Direct concessions, is challenging the restructuring in court. Sarah Butler
On that day, Ashley admitted that total profits would fall after the British high street endured an “unbelievably bad” November when Brexit worries deterred shoppers. It said underlying profits would rise by 5% to 15%.
Analysts said Ashley faced a series of problems at his business.
“House of Fraser is clearly in a degree of disarray, it would appear that the finance department is understaffed to cope with the array of acquisitions and we are also concerned about the direction of the core business,” said Jonathan Pritchard and John Stevenson, retail analysts at the stockbroker Peel Hunt. They suggested House of Fraser could be set to lose more than the £50m already expected for the year and take longer to recover.
They said that Ashley and his team appeared to have taken on too much, having bought Evans Cycles, the furniture business Sofa.com, Game Digital and House of Fraser, as well as becoming involved in a bitter, and ultimately unsuccessful, battle for control of Debenhams. Ashley is also embroiled in a bust-up with Goals Soccer Centre, the five-a-side pitch operator where shares have dived after the company admitted it had underpaid VAT. “He’s trying to coach the England football team while running the netball, the tennis and the chess team as well,” Pritchard and Stevenson said.
The pressure on Sports Direct’s management team has ramped up in recent weeks after the sudden exit of Ashley’s long-term lieutenant Karen Byers and the company secretary Cameron Olsen in an apparent falling out over strategy.
Suppliers confirmed that House of Fraser was trading very poorly in many locations during a difficult period for all retailers. Shoppers are reining in spending on clothing amid economic uncertainty, poor weather and competition from other attractions such as mobile phones and events. House of Fraser has also suffered disruption since Sports Direct bought it out of administration in a £90m rescue deal last August.
One source said: “Its an absolute shocker. There are lots of reasons. Lots of people look online before buying [even in store] and the website is a car crash. Some [brands] who were taking £10m a year are now taking almost nothing … Some stores are full of Sports Direct clearance rails.”
Retail insiders are expecting House of Fraser to close a number of stores after Christmas as it tries to limit losses and focus on revamping the best sites into upmarket brand, Frasers.
Sports Direct said in its statement on Monday that increased regulatory scrutiny of auditors and audits, including a review by the Financial Reporting Council, the corporate watchdog, of Grant Thornton’s audit of Sports Direct’s accounts, had also contributed to the delay.
Last week, Grant Thornton came bottom in the Financial Reporting Council’s annual review of audits by the UK’s large accountants. The watchdog reviewed the company’s audits of Patisserie Valerie, Interserve and Woodford Patient Capital Trust, as well as Sports Direct. Photo-Me International, the photo kiosk and launderette operator, delayed publishing its accounts last week as it said Grant Thornton needed more time to go over its numbers.
Sports Direct now expects its audited results to be published between 26 July and 23 August.
