Mike Ashley insists that Sports Direct is on track to become the “Selfridges of sport” despite reporting a near 60% dive in annual profits.
Underlying profits before tax at the sportswear chain slumped by 58.7% from £275.2m to £113.7m in the year to the end of April.
Ashley, the company’s billionaire founder, chief executive and majority shareholder, blamed the fall in profits on the decline in the value of the pound against the dollar, which he said had a “significant impact”.
But shares in the retailer closed up nearly 11.5% at 335p as it announced the appointment of a finance director for the first time since 2013 and forecast that earnings for the year ahead would rise by between 5% and 15%. Many City analysts were expecting another decline.
Sports Direct had to issue a profit warning last October after a bet designed to protect itself against a slump in sterling went wrong, causing it to lose £15m in the currency markets during an overnight “flash crash” in the value of sterling in the east Asia.
Ashley told City analysts that he was now expecting a better UK performance at Sports Directs partly because the company had “smashed the ball out of the park” with its investment in more up-market flagship stores. The latest development is a new strategic partnership with Japanese footwear brand Asics, which will take space in Sports Direct’s flagship stores.
The company is also beginning to take action after being hit by a scandal over its treatment of workers after a Guardian investigation. MPs described conditions at the group’s Shirebrook warehouse as like a “Victorian workhouse”.
Sports Direct said it had set up a feedback system called “Your Company Your Voice” for all staff, including agency workers at the warehouse, “to raise any issues of concern or suggestions for improvements”. There is also a new staff health and safety committee and a staff wellbeing service.
The business has also been hit by a series of earnings downgrades, which were blamed on tough trading conditions.
Ashley said: “Sports Direct is on course to become the Selfridges of sport by migrating to a new generation of stores to showcase the very best products from our third-party brand partners. We have invested more than £300m 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.”
Jon Kempster has been brought in as chief financial officer. The former finance director of energy consultancy Utilitywise, logistics group Wincanton and industrial firm Delta will join on 11 September.
During the year, Ashley took over as chief executive following the departure of Dave Forsey in September 2016, an appointment that was “positively welcomed by a number of shareholders”, the company noted.
Group revenues climbed by 11.7%, including a 2.6% increase in UK revenues excluding acquisitions and the 53rd week.
Laith Khalaf, a senior analyst at Hargreaves Lansdown, said Sports Direct still faces “challenging times”.
“The retailer is trying to reinvent itself into the Selfridges of sports in the UK, while at the same time launching in the US, and fighting off concerns from shareholders and MPs about corporate governance and working conditions in the UK. All this while the weak pound is increasing costs, and the British consumer is facing rising inflation and weak wage growth – not a pretty combination for the price-sensitive shoppers who turn to Sports Direct for a bargain,” Khalaf warned.
Ashley’s “unorthodox” business practices have come under scrutiny during a recent high court hearing in a dispute between Ashley and a former colleague. They include taking naps under the table during “boring” meetings and being such a “power drinker” that he once allegedly vomited into a fireplace.
Khalaf added: “Of course the latest company results are somewhat of a sideshow next to the recent courtroom outbursts of majority shareholder and chief executive Mike Ashley. Options to avoid the spotlight include taking the company private again.”