Yahoo Finance Sports Direct profits plunge by 72% after £85m hit on Debenhams stake
Profits at Sports Direct have plunged by nearly three-quarters after the retailer took an £85m hit on its investment in Debenhams, the struggling department store chain.
The sportswear retailer, founded by the billionaire Mike Ashley, said pre-tax profits fell 72.5% to £78m in the year to 29 April, from £282m the previous year, reflecting the sharp drop in value of its near-30% stake in Debenhams.
The decline was also partly the result of a one-off boost to profits in the previous year from the sale of Sports Direct’s Dunlop business and shares in rival retailer JD Sports.
Despite the fall in profits, the company revealed it is to pay out £5m to Michael Murray, the partner of Ashley’s daughter who advises the company on property transactions. The company said the fee was based on the “value created” by Murray and covered his work over the three years to March.
Murray has also been handed the role of “head of elevation”, leading Ashley’s drive to move Sports Direct upmarket and become known as “the Selfridges of Sport”.
Sports Direct’s finance director, John Kempster, said: “The group has always had a performance-related pay culture and this is very much in the same box.”
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Warren Evans: bedmaker went into administration earlier in February.
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Juice Corp: business behind brands including Elizabeth Emanuel and Joe Bloggs went under in January.
Multiyork: furniture chain with 50 stores went into administration in November.
Feather & Black: bedroom furniture and bedding specialist with 25 outlets fell into administration in November.
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New Look has debts of more than £1bn and has lost some of its credit insurance cover, which protects suppliers if a retailer goes bust. In the 10 months to Christmas, sales fell 11% and losses hit £123m. The company intends to close 60 stores and change its fashion ranges, but faces a struggle to win back young shoppers.
House of Fraser's Chinese owner, Sanpower, had to stump up £25m to see the store through Christmas and its debt is rated as junk. The retailer is attempting to reduce the size of its stores by 30% and has asked landlords to cut rents.
Debenhams, a 178-store chain that is more than 200 years old, is axing one in four of its managers and considering closures to cut costs. It has warned that profits have been hit by lower than expected sales, with profit margins also down as a result of having to cut prices to match rivals.
Shares in Sports Direct fell 7% after the statement, making the retailer one of the biggest fallers on the FTSE 250.
Sports Direct’s full-year results showed a 2% drop in UK sales – which make up nearly two-thirds of its business – to £2.2bn and a slight dip in European sales. The rest of the world performed better and overall group revenues grew 3.5% to £3.4bn.
Kempster said the firm was “very happy with the results”, adding: “In a tough market maintaining sales is OK.”
Kempster said Sports Direct had benefited from England’s run in the World Cup as fans snapped up replica shirts. However, Kempster described the overall World Cup impact on trade as only “a blip” because the retailer was now an international business and included fashion chains such as Flannels and USC.
Despite the financial blow from the Debenhams investment, Kempster said that strategic punts on the shares of rival retailers were “part of our DNA”. He said Sports Direct was talking to the ailing department store about initiatives that might help both retailers.
However, Ashley reportedly told City retail analysts that he would be “smashing into [Debenhams] about why they don’t do anything Sports Direct suggests”.
.”Shares in Debenhams have tumbled 66% to 11.9p since the start of the year. The department store chain has issued three profit warnings since Christmas and came under fresh pressure this week when it emerged that credit insurers have reduced cover for suppliers to the company.
In a further blow to Ashley on Thursday, shares in Goals Soccer Centres, a five-a-side football operator in which Sports Direct owns a 19% stake, slumped nearly 22%. The company issued a profits warning blaming the snowy, cold weather in March.
Sports Direct said it was continuing to pay all staff, including casual workers, hourly rates above the national minimum wage, as well as commission and other rewards worth £20m a year.
The unusual statement follows a Guardian investigation in 2015 which found that temporary workers at Sports Direct were effectively receiving hourly rates of pay below the minimum wage.
“There aren’t many companies that feel the need to state compliance with the National Living Wage in their annual results – but then Sports Direct isn’t renowned for diligently following corporate etiquette,” said Laith Khalaf, a senior analyst at Hargreaves Lansdown, said.
