Jul 7, 2016
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Sports Direct says Brexit clouds 2017 outlook

Jul 7, 2016

Retailer Sports Direct said a weaker pound would push up the cost of its imports and consumer confidence would deteriorate as it assessed on Thursday the likely impact of the UK's decision to leave the EU.

Sports Direct

Britain's Brexit vote on June 23 came after a difficult trading year for the sports retailer which was compounded by bad publicity about the treatment of its workers.

The company, founded by billionaire Mike Ashley, posted a 0.5 percent drop in core earnings to 381.4 million pounds ($495 million) for the year to April 24, at the bottom end of guidance given in January.

Chief Executive Dave Forsey said Sports Direct took measures last year to reduce currency fluctuation risks but had not done so this year. He said the company therefore faced higher costs for own-label goods sourced in the Far East and might not be able to pass those on to the consumer.

"We are unhedged on sterling-dollar for FY17, that's going to make life difficult" he told Reuters on Thursday.

"There's not going to be much appetite for inflation from a consumer perspective, so how much of it then gets mitigated is the key. That's what we work on going forward."

Shares in the group had fallen 28 percent since Brexit, but they rebounded on Thursday and were trading up 4 percent at 290 pence at 1003 GMT as the annual results, though weak, were not as bad as expected.

"Disappointing they might have been, but many analysts had feared even worse and so the numbers were greeted with relief by the market," broker Hargreaves Lansdown said in a note.

RBC Capital Markets noted that the company said it was considering a share buyback, which it did after the financial crisis in 2009/10.

Forsey said it was too early to quantify the impact of Brexit on consumer spending, but political uncertainty was likely to act as a continuing drag on consumer confidence.

"When combined with the structural difficulties for UK retailers, including high street footfall, and our exposure to the weakness of the pound against the U.S. dollar, these factors make the current outlook for FY17 somewhat uncertain and therefore hard to predict," the company said.

Sports Direct warned on the day after the EU referendum that the fall in the value of sterling against the dollar was likely to impact stock purchases for which it was not hedged this financial year and beyond.

Forsey said its own-label brands such as Lonsdale and Karrimor, which account for half of sales, were impacted. Goods from the likes of Adidas and Nike were purchased in pounds.

Sports Direct reported earnings before interest, tax, depreciation and amortisation of 381.4 million pounds, just within guidance of 380 million to 420 million pounds given in January, on revenue up 2.5 percent at 2.9 billion pounds.

Adjusted pretax profit for the year to April 24 fell 8.4 percent to 275.2 million pounds.

Deputy chairman Ashley, who owns 55 percent of Sports Direct, told the board that contrary to media reports, he had no current intention of taking the company private.


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