Sports Direct’s spending spree set to hit profits
Mike Ashley’s retail and investment operation will face scrutiny on Thursday over its purchase of House of Fraser.
Sports Direct’s Mike Ashley will update the City on trading at his retail empire and on the progress made since snapping up several big name high street brands.
Facing investors on Thursday, he is expected to give more details on his plans for leading House of Fraser back to its former glory, as well as his disappointment at failing to buy Debenhams, before it fell into administration.
He could also face questions over his £52 million takeover of Game Digital, and his threats to Goals Soccer Centres, which Sports Direct has a 19% stake in, over its ongoing accounting scandal.
Analysts predict revenues to rise by around 11% to £3.74 billion, with underlying pretax profits, which strip out one-off costs such as the House of Fraser purchase, predicted to be down 7% to £284.4 million, based on Bloomberg estimates.
Away from acquisitions, Sports Direct has focused heavily on its premium brand Flannels and is expected to reveal strong growth in the division.
Mr Ashley has targeted footballers, by opening Flannels near Premier League football clubs outside London, to get the highly-paid stars through its doors.
The biggest division, Sports Direct’s sportswear stores, will also be under pressure due to the general downturn on the high street, but investors will be hoping to hear that profit margins have improved.
However, as revealed by PA last week, Mr Ashley will have to reassure investors that the sudden departure of his long-term lieutenant of 28 years, Karen Byers, will not impact the business.
Analysts will be looking for hints on whether Mr Ashley sees other takeover opportunities, but with substantial work needed on House of Fraser, he may take his foot off the gas.
House of Fraser already booked a underlying pretax loss for the first six months of the year of £31.5 million on revenues of £70.1 million, although bosses have previously said it could break even in the new financial year.
Investors will be keen to hear whether that belief still stands and whether the investments are yielding results.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown explained: “A challenging trading environment on the high street is no secret, but Sports Direct needs to show it’s doing more than cutting prices to offset footfall problems.
“Plans to uplift existing stores aren’t coming cheap, and we’d like some evidence this investment is starting to pay its dues.”