Business

Sports Direct delays results as House of Fraser trading 'uncertain'

House of Fraser store Image copyright Getty Images

Shares in Mike Ashley's Sport Direct have fallen sharply after it delayed its results, citing uncertainty about trading its House of Fraser chain.

The company, whose results were due on Thursday, added the delay was also due to its auditor, Grant Thornton, facing increased scrutiny of its work for Sports Direct.

Sports Direct also indicated that it may not achieve its profits forecast.

The firm's results will now be released between 26 July and 23 August.

In December, when Sports Direct published its half-year results, it said that, excluding House of Fraser, operating profits were expected to grow by between 5% and 15%.

But in its latest update, the company said: "There are a number of key areas to conclude on which could materially affect the guidance given in Sports Direct announcement of 13 December".

Around that time, Mr Ashley had described trading as "unbelievably bad".

Trading has continued to be difficult for retailers. The British Retail Consortium said on Monday that there had been a "summer slump", with footfall on High Streets in June dropping 2.9%.

News of the delay in Sports Direct's results sent its shares down 15% at one stage to a seven-year low, although they ended the day almost 10% lower.

Mike Ashley owns huge swathes of the High Street, although not all through Sports Direct in which he owns a 62% stake.

As well as buying House of Fraser for £90m last year - saying he wanted to turn it into the "Harrods of the High Street" - he has also bought Evans Cycles and owns several sportswear brands, the upmarket clothing outlets Flannels and Cruise, as well as lingerie firm Agent Provocateur.

His expansion efforts continued on Monday when Sports Direct also announced it was close to taking control of Game Digital.

But his ambitions are not always achieved. Earlier this year, he had tried to have himself installed as chief executive of Debenhams, but instead had his stake in the chain wiped out when the retailer was rescued by its lenders.

Mr Ashley has also failed to take over music retailer HMV and pulled out of the bidding for Patisserie Valerie.

Goals Soccer Centres, the five-a-side football operator in which Sports Direct has an 18% stake, has had accounting issues and issued profits warnings.

Overstretching?

Analysts at the stockbroker Peel Hunt are concerned the acquisition spree is putting too much pressure on management.

"Let's be clear: we think Mike Ashley is a genius when it comes to sports retail. No doubt about it," they say in a research note.

"However, to make an analogy, he's trying to coach the England football team whilst running the netball, the tennis and the chess team as well.

"Unfortunately for him, his key lieutenants are starting to jump ship: Karen Byers, who has been instrumental in the growth of the core business, has left and that is another savage blow," they added.

Cameron Olsen, company secretary, who worked for Mike Ashley for 15 years, is also leaving, according to reports.

"House of Fraser is clearly in a degree of disarray, it would appear that the finance department is under-staffed to cope with the array of acquisitions, and we are also concerned about the direction of the core business," the Peel Hunt analysts said.

Independent retail analyst Nick Bubb described the announcement from Sports Direct about the delay to its results as "devastating".

"The company hasn't updated the City since its interims in December and House of Fraser is clearly a disaster area, so this is a serious situation," he said.

Image copyright Getty Images

As well as citing the "complexities of integration into the company of House of Fraser", as one the factors behind the delay to its results, Sports Direct also pointed to "increased regulatory scrutiny of auditors".

Sports Direct said that other companies' audits were also taking longer, and Mr Bubb noted that Superdry has delayed its results earlier this month due to complexities in the figures.

The accounting regulator, the Financial Reporting Council, had looked into Grant Thornton's audit of Sports Direct's 2018 results as part of its annual review process.

The regulator found that, overall, 50% of Grant Thornton's audits were below the acceptable standard.

"These factors have led to a need for the company to compile more information than in previous years," Sports Direct said.

"Sports Direct would note that its core principles in regards to its financial statement are be conservative, consistent and simple," it added.

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