Interactive Investor

Sports Direct slams shareholders

23rd April 2014 10:16

Ceri Jones from interactive investor

Sports Direct International gave a bullish update on its current trading on Wednesday in advance of its year end on 27 April 2014.

Group sales for the nine weeks ended 30 March were up 10.3% to £360 million and gross profit increased 11.5% to £147 million.

Most of the growth came from Sports Retail sales which were up 11.0% to £293.3 million with profits rising 14.9% to £120.4 million, as sales benefited from the retailer's domination of the sportwear market and increasing brand range, including tennis specialist Slazenger.

Premium Lifestyle sales rose by 0.7% to £27.1 million with gross profit falling 4.1% to £9.9 million. The Brands division revenue increased by 12.8% to £39.6 million with gross profits level at £16.7 million.

While the trading figures are encouraging, shareholders would like to know about founder Mike Ashley's stakes in department store chains House of Fraser and Debenhams.

There has been speculation that Sports Direct took the stake hoping to sabotage a bid from Chinese conglomerate Sanpower and secure the business for itself but the company has remained tight-lipped. Sanpower has now taken control of 89% of House of Fraser's shares.

Sports Direct's chief executive Dave Forsey was recently named as the sole director in West Coast Capital HofCo, the company that holds an 11% stake in House of Fraser.

"Confident" Board

The trading figures may help relations with shareholders who recently rejected an executive reward plan that would have given Ashley up to £70 million. In response Ashley promptly sold £200 million in shares, causing the price to crash nearly 10% in a day.

Dave Forsey, chief executive, said: "Sports Retail continues to perform well since the end of January, primarily driven by our on-going focus on exceptional quality, unbeatable value, availability and the continued optimisation of sales between stores and online.

"During the period, the Board was extremely disappointed to withdraw the resolution regarding a proposed share scheme award to Mike Ashley. The most disappointing aspect was where large shareholders gave their support only to then vote differently. This outcome is likely to lead to further uncertainty in the future.

"While we retain the ability to invest in margin, inventory and group marketing to deliver long-term sustainable growth, the Board is very confident of achieving at least our full year internal underlying EBITDA [earnings before interest, taxes and amortisation] target of £310 million, before the charge for the Employee Bonus Share Scheme."

The shares confounded by falling 1.8% to 814.7p, in the first half hour of trading, possibly because the bumper trading had been well trailed. The preliminary results will be announced on 17 July 2014.

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