Sports Direct’s plan to become the Selfridges of sport is on track, Mike Ashley told investors yesterday, despite profits falling by nearly 60 per cent last year.
In a presentation to the City, the chief executive tried to reassure nervy shareholders and analysts that the worst was over for the group as he appointed a chief financial officer and gave an extremely bullish forecast of an uplift in earnings this year.
Despite profits falling from £275.2 million to £113.7 million in the year to April, Mr Ashley’s upbeat view appeared to disperse some of the gloom around Sports Direct, pushing the shares up 11.4 per cent to 335p.
Mr Ashley said the steep fall in underlying profits on revenue that was up nearly 12 per cent at just over £3.2 billion was largely a result of the retailer’s exposure to the fall in the pound, as well as its botched attempt to properly hedge its risk.
The group’s trading has also been hit by competition from JD Sports, which has been stealing market share, while its reputation has suffered after Sports Direct became mired in a scandal over its working practices and corporate governance.
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However, the billionaire said that the group was now conservatively managing its currency risk and had a wider strategy in place to create a “new generation of stores” that would restore profit growth.
Mr Ashley said that Sports Direct had appointed Jon Kempster, previously at Wincanton and Utilitywise, as chief financial officer to fill a role that has been vacant since 2013. Mr Ashley, who admitted during a trial recently that he liked to “power” binge drink, said he was so confident that Sports Direct was on the right track that he expected its underlying earnings to rise by between 5 per cent and 15 per cent this year.
One analyst who attended the presentation said: “Mike told us he actually wanted to say that earnings would grow between 10 and 15 per cent this year but he was advised to be more cautious and say between 5 and 15 per cent. That is how confident he seemed.”
Jonathan Pritchard, an analyst at Peel Hunt, the broker, said: “The outlook statement is miles ahead of expectations. We are eager to know how Sports Direct can shift the focus of its range from own-label product (50 per cent to 60 per cent gross margin) to third-party brand (about 30 per cent gross margin) without impacting margins. Maybe it sees very strong like- for-like growth ahead? Either way, we were surprised and impressed by this statement, which is as upbeat an outlook as we have heard from any retailer in recent reporting sessions”.
Mr Ashley said Sports Direct, whose UK sales rose 6.3 per cent to £2.1 billion last year, was recording stronger performances from its upgraded stores: “We have invested over £300 million in property over the last year, and I am pleased to report that early indications show that trading in our new flagship stores is exceeding expectations.”
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He said Sports Direct was forging stronger partnerships with global brands, announcing a new partnership with Asics for its premium stores. Its international division, which has been a problem for some time, recorded a 38 per cent rise in revenue last year.
Sports Direct, which is not paying a dividend this year, bought a 26 per cent stake in Game Digital this month. Mr Ashley did not elaborate further on his strategy for the video game company, except to say: “When all the other fishes swim one way, I swim the other.”