Sports Direct results fiasco on House of Fraser fallout
Retailer Sports Direct has delayed publishing its annual results, warning that problems in integrating its purchase of House of Fraser stores and increased scrutiny of its accounts could affect the financial guidance it gave in December.
Shares in the company, controlled by Newcastle United soccer club owner, Mike Ashley, dropped 8%.
Sports Direct described trading in December as “unbelievably bad”. While it did not give an update on its core sporting goods stores, it referred to complexities in integrating the House of Fraser chain, which it bought last year, and “uncertainty as to the future trading performance of this business”.
“HoF is clearly a disaster area, so this is a serious situation,” independent retail analyst Nick Bubb said.
Sports Direct’s core chain has been a resilient performer in recent years, compared with a string of British retailers that have collapsed in the face of subdued consumer spending and a shift to shopping online.
However, the group has also engaged in a raft of dealmaking that has complicated the business. It recently spent time trying — and failing — to buy department stores group Debenhams, after purchasing House of Fraser out of administration last year.
The company also said it now controlled video-gaming retailer Game Digital, “thereby adding to the complexity of the business”, according to Mr Bubb.
AJ Bell analysts questioned whether the acquisition spree was a distraction. “Since Mr Ashley gave guidance, both including and excluding House of Fraser some eight months ago, this implies that trading in the core retail business has also disappointed,” they said.
Sports Direct said in December that its core business was on track to meet its target of increasing earnings by 5% to 15% in the year to the end of April, but the House of Fraser acquisition would result in a drop in full-year earnings.
Sports Direct, which is 61% owned by Ashley, said the timing of its results had also been affected by a review by Britain’s accounting watchdog of Grant Thornton’s audit of the company’s results for the 2018 financial year. That meant the company had to compile more information than in previous years.
Last week, Britain’s Financial Reporting Council (FRC) said all of the country’s leading accounting firms had failed to meet quality targets set by the regulator for auditing company books.
