Dec 13, 2018
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Sports Direct upbeat, says mixed results show progress of elevation strategy

Dec 13, 2018

A succession of weak company results reports has shown just how troubled the fashion sector is. But with Sports Direct covering the more buoyant sports/leisure sector, as well as pure fashion via its Flannels chain and others, it was interesting on Thursday to see how it has done in recent months.


Its results for the 26 weeks to October 28 may not have been spectacularly good but they weren’t that bad either. In fact, its overall revenue rose 4.5% to £1.792bn, but that was with £70m of House of Fraser sales taken into account. Without that turnover boost, and on a currency-neutral basis, group revenue increased by 0.2%.

And while its UK Sports Retail unit saw a 0.2% dip to £1.14bn, Premium Lifestyle soared 29.4% to £87.6m. European Sports Retail fell 4.8% to £313m and Rest of World Retail was just short of £101m, a 28.1% rise.

All of its units saw gross margins rise, although it’s interesting that with margins ranging from 34.2% in Premium Lifestyle up to 43.5% in European Sports Retail, House of Fraser stood out with a gross margin of just 28.7%.

So what did that means for profits? Underlying EBITDA (excluding House of Fraser) rose 15.5% to £180.3m but fell 4.7% to £148.8m with acquisitions and currency effects taken into account. Underlying pre-tax profit plunged 26.8% to £64.4m, mainly due to higher depreciation and amortisation and higher net interest. Reported pre-tax profit grew 64.4% to £74.4m.

Looking at the reasons for all this, UK Sports Retail revenue and European Sports Retail revenue fell largely due to store closures “as part of the continued elevation of the portfolio”. Premium Lifestyle rose so much mainly due to new Flannels stores and Rest of World Retail revenue rose so strongly on the back of the purchase of the Bob's/EMS stores in the US.

CEO Mike Ashley didn’t pull any punches in his commentary around HoF in particular: “During the reporting period we acquired the trade and assets of House of Fraser. I have made my views clear that I believe the previous House of Fraser senior management team traded the business whilst it was insolvent for a long time, this means we have significant challenges ahead in turning House of Fraser around. However, I genuinely believe we have acquired a fantastic opportunity and with the efforts of Sports Direct and House of Fraser teams, and the support of the brands, local councils and landlords, we can turn House of Fraser into the Harrods of the High Street.”

He summarised the rest of the business as having “had another successful period” given the growth in underlying EBITDA. "This is impressive in the context of the current struggles in the high street and shows our elevation strategy continues to go from strength to strength. Excluding House of Fraser we anticipate we will be within our previously communicated underlying EBITDA growth range of 5%-15% by year end, [but] including House of Fraser we expect to be behind last year's result.”

And the business clearly remains committed to its elevation strategy that it says “has been given further impetus by the acquisition of House of Fraser.”

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