Wednesday 21 November 2018

Sports Direct takes £85m hit on Debenhams stake

Sports Direct founder and CEO Mike Ashley
Sports Direct founder and CEO Mike Ashley

James Davey

British retailer Sports Direct has booked an £85.4m (€95.6m) charge for a disastrous investment in department store chain Debenhams, raising questions over its strategy of taking big stakes in other businesses.

The Debenhams hit took the shine off a better-than-expected jump in Sports Direct's core earnings in 2017-18, sending its shares down as much as 11.6pc yesterday.

Some 61pc of Sports Direct's equity is owned by its billionaire founder and CEO Mike Ashley, who also owns Premier League soccer club Newcastle United.

The group has a 29.7pc stake in Debenhams, whose shares have slumped 72pc over the last year after a series of profit warnings.

Sports Direct has several other significant equity investments, including in House of Fraser, French Connection, Game Digital, Findel and Goals Soccer Centres.

"It's hard to fathom the precise strategy at play here," said Laith Khalaf, analyst at Hargreaves Lansdown.

"With such a maverick in charge of the business we can continue to expect the unexpected, and that's not a brand markets tend to wear gladly," he said.

Jon Kempster, Sports Direct's chief financial officer, defended the policy.

"The strategic investment side is part of our being, it's part of our DNA that we try and drive relationships through investments," he told Reuters, also pointing out that in the 2016-17 year the group made over £150m from the disposal of shares in rival JD Sports Fashion and £80m from the sale of the Dunlop brand.

Before yesterday's update, Sports Direct's shares had increased 45pc over the last year as Mr Ashley's trading strategy to smarten up its stores and sell more premium products from its four key suppliers - Nike, Adidas, Puma and Under Armour - to better compete with rivals JD Sports and Decathlon, gained some traction.

The firm has dubbed this its 'high street elevation strategy'.

Mr Ashley's stated desire is to make Sports Direct the 'Selfridges of sport', a reference to the department store on London's Oxford Street.

Its reported pre-tax profit in 2017-18 fell 72.5pc to £77.5m, partly reflecting the Debenhams charge, on revenue up 3.5pc to £3.36bn. (Reuters)

Irish Independent

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