Feb 18, 2009
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Sports Direct on track to meet profit hopes

Feb 18, 2009

By James Davey

LONDON (Reuters) - The nation's biggest sporting goods retailer, Sports Direct International (SPD.L) forecast full-year earnings in line with market hopes as it reported a 12 percent increase in third-quarter sales, sending its shares 6 percent higher.

The company, 71 percent owned by Newcastle United soccer club owner Mike Ashley, said on Wednesday it expected year to end-April 2009 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to meet market hopes of about 135 million pounds in spite of the tough trading environment.

In the previous year Sports Direct made 150 million pounds.

The group, which owns the Sports World and Lillywhites stores as well as brands such as Slazenger, Lonsdale and Dunlop, said total sales for the 13 weeks to January 25 were 355 million pounds, up from 317 million pounds in the same period last year.

Sports Direct's gross profit edged up to 143 million pounds from 142 million pounds, which meant its gross margin fell 4.5 percent to 44.8 percent.

"Sales in the UK retail division were ahead of our expectations although gross margin was impacted by the weaker pound against the U.S. dollar over the period as a substantial proportion of the group's imports are paid for in U.S. dollars," it said.

Sports Direct's overseas operations account for their results in both U.S. dollars and euros. It said that this, on translation, benefited the group due to the pound's weakness.

"While it is too early to say that Sports Direct has turned the corner, it is gradually learning to provide investors with, first, some numbers and, second, some numbers that make good reading," said Panmure Gordon analyst Philip Dorgan in a research note.

"The gross margin performance may spook the sector, but we think that it is largely in share prices," he added.

Many retailers are struggling as consumers cut back on spending as a result of soaring unemployment, sliding house prices and fears of a long-lasting recession.

Sports Direct floated at 300 pence in February 2007 but has since issued three profit warnings and lost 80 percent of its flotation market capitalisation.

The group is still without a permanent chairman 20 months after David Richardson quit, having decided he could not work with Ashley, who made 929 million pounds from the float.

Sports Direct has a 22 percent interest in struggling rival JJB Sports (JJB.L) and has been linked with a possible purchase of its gyms business.

The group also owns a 13.1 percent stake in JD Sports Fashion and a 29.4 percent holding in Blacks Leisure Group (BSLA.L).

Last week, Blacks said it had received approaches regarding a possible offer. Sports Direct declined to say if it was one of the suitors.

At 8:55 a.m. shares in Sports Direct were up 3.5 pence at 62.25 pence, valuing the business at 359 million pounds.

($1=.7071 Pound)

(Reporting by James Davey; editing by Simon Jessop and Rupert Winchester)

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