Sports Direct sees profit growth

Sports Direct forecast core earnings growth of as much as 15% this financial year helped by a nascent turnaround at department store House of Fraser, as investors backed a plan to change the group’s name to Frasers Group.

Problems integrating House of Fraser, which Sports Direct bought out of administration last year, have dragged on the group’s earnings, with founder, CEO and controlling shareholder Mike Ashley saying previously that the 90 million pound ($115.47 million) purchase may have been a mistake.

For the 12 months to April 26 2020, Sports Direct said it expects underlying core earnings (EBITDA) to grow between 5% and 15% to between 356 million pounds and 390 million pounds from the 339 million pounds it made in the previous year.

Shares in the company soared by almost 30%, hitting their highest in nearly four years.

Sports Direct had declined to give forward-looking guidance in July, blaming the uncertain impact of House of Fraser on its bottom line.

But on Monday it said it had stemmed losses at the department store chain by rectifying mistakes made by its previous management, cutting costs and changing the product mix to one that generated higher margins.

“We are starting to see the green shoots of recovery as we continue to integrate the business into the group,” non-executive chairman David Daly said in a statement.

The company said that despite the improving performance, a number of House of Fraser stores were financially unsustainable and some were likely to shut.

Liberum analysts called the first half-results very strong and said that given the outlook, Sports Direct’s market capitalisation was too low.

Reuters