Shares in Sports Direct International (SPD) slumped 13.6% to 227.6p as the Mike Ashley-controlled sportswear giant spooked investors by delaying the publication of its full year results.
Besides problems with the integration of department store House of Fraser, Sports Direct blamed increased scrutiny of its accounts for the delay and softened investors up for another profit warning, cautioning that the audit could ‘materially affect’ the guidance given to the market back in December.
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Mansfield-headquartered Sports Direct, controlled by deal-hungry billionaire Mike Ashley (pictured below), the controversial owner of Newcastle United Football Club, said the publication of its results for the year ended 28 April 2019 will be pushed back beyond this Thursday (18 July) to a date between 26 July and 23 August.
The trainers-to-tennis rackets seller attributed the delay to ‘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’.
Sports Direct also explained that auditor Grant Thornton needs more time to make sure the numbers are transparent, following a Financial Reporting Council (FRC) review of the 2018 figures.
TRICKY INTEGRATION
Investors are voting with their feet on Monday, concerned by the tricky integration process regarding August 2018’s £90m acquisition of House of Fraser. Worse still, Sports Direct says that a number of issues could mean that the guidance for underlying earnings before interest, taxation, depreciation and amortisation (EBITDA) given last December could prove overly optimistic.
Since Ashley, amassing a sprawling retail empire, gave guidance both including and excluding House of Fraser some eight months ago, this implies that trading in the core retail business has also disappointed.
UNDERSHOOTING FORECASTS
Russ Mould, AJ Bell investment director, commented:
‘The hint that underlying EBITDA will now undershoot forecasts, excluding acquisitions, will stoke concerns that Sports Direct’s strategy to supplement organic growth with an acquisition spree is serving as a distraction to management and overstretching the key teams at a time when the core business offers more than enough challenges to keep them busy - anyone working in the buying departments right now has a pretty unenviable task, for starters.
Sports Direct’s shares now trade well below their March 2007 flotation price of 300p and this terrible performance ‘already reflects concerns over both underlying trading and the group’s strategy.
‘The one-time FTSE 100 member has snapped up not just House of Fraser, but also Evans, high street video gaming specialist GAME Digital (GMD) and Sofa.com, as well as stakes in Findel (FDL) and French Connection (FCCN). A near-30% holding in Debenhams was rendered worthless when that firm fell into administration this year.
‘The strategy has yet to prove itself, as the group’s 2018 gross margin was the lowest seen during Sports Direct’s time as a public company. Mr Ashley now needs to show that he can make the deals gel while continuing to develop the core Sports Direct operation’s competitive position, in the face of economic uncertainty and the wider woes of bricks and mortar shops. On an underlying basis, pre-tax profit in 2018 was barely half that of 2015.’
