Sports Direct earnings slump on weak pound
Profits at the sport retailer have dropped on the back of poor hedging
Sports Direct founder Mike Ashley. The retailer has posted a 58.7 per cent plunge in annual underlying pre-tax profits. (Photograph: Joe Giddens/PA Wire)
British retailer Sports Direct on Thursday reported a 28.5 per cent slump in full-year core earnings, reflecting a lower gross margin due to the weaker pound and a lack of hedging.
The sportswear chain, founded and run by billionaire Mike Ashley, said it had put in place hedging arrangements to minimise the short-term impact of currency volatility but remained exposed to fluctuations in the medium and long term.
However, it drew encouragement from early indications showing that trading in a new generation of flagship stores was exceeding expectations.
It said its outlook was “optimistic” and it was targeting growth in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of 5 per cent to 15 per cent in the current 2017-18 year.
“However, we will continue to be conservative in managing for the medium to long term, which may result in short-term fluctuations in underlying EBITDA, particularly given the continued uncertainty surrounding Brexit,” it said.
Sports Direct was badly caught out by the fall in the pound which followed Britain’s vote to leave the European Union in June last year. The group sources most of its products from Asia in dollars but was not hedged for the 2016-17 year before the Brexit vote and then erred with a belated hedge.
The group made underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of £272.7 million (€308 million) in the year to April 30th.
That compares to Sports Direct’s guidance of about £265 million issued in December, and £381.4 million made in 2015-16.
Shares in Sports Direct have increased 8 per cent so far this year, having lost half their value in 2016. The stock closed Wednesday at 301 pence, valuing the business at £1.6 billion. The group also said it has appointed Jon Kempster as chief financial officer. He is a former finance director of logistics group Wincanton.