Sports Direct’s share price today felt the backlash of investors who had waited until after markets closed last week to learn of the retailer’s dire set of annual results.
Mike Ashley’s company saw shares dive as much as 16 per cent to 193.2p in early morning trading after he admitted it owes £605m in an unpaid tax bill, and expressed regret for buying House of Fraser.
Shareholders had expected the results at 7am last Friday, but waited until after 6pm for the company to publish its financials.
Among the bad news, Sports Direct revealed:
- The departure of finance boss John Kempster
- Problems at House of Fraser, which it bought for £90m last summer, are “nothing short of terminal”
- A three per cent drop in core revenue and 4.7 per cent drop in underlying profit
- No profit guidance for next year
Analysts struck a more optimistic note today however.
Neil Wilson, chief analyst at Markets.com, said it was too early to write Ashley off.
“Whilst there are clearly many doubts about the elevation strategy, among others, we are in no doubt that Ashley is the master of the stack ’em high approach,” Wilson said.
“Moreover, the fallout from House of Fraser may well clip his wings in terms of making further dilutive acquisitions. Chastened, this may be the time we see a renewed focus on the basics.”
But he admitted the share price fall showed that “investors ran for the hills” after the poor set of results.
Liberum, meanwhile, maintained its buy rating for Sports Direct, saying fears were “overdone”.
“The elevation strategy is working, leading to improvement in ranges, Flannels performance is strong, the core business has been robust against a challenging backdrop and the balance sheet remains strong,” the broker said.
If Ashley can turn House of Fraser around then earnings before interest tax and depreciation (Ebitda) could grow in 2020 and onwards, Liberum added.
“There is a lot of moving parts here and risks in retail are real, but one should not lose sight that Sports Direct generates circa £300m of Ebitda, balance sheet is strong and the market at circa £1.2bn is just too low,” the broker said.
Sports Direct narrowed its share price drop to 11 per cent shortly before 9am, leaving shares at 204.4p.
Main image: Getty