Sports Direct hit by 拢85.4m Debenhams own goal
The retailer has a 29.7% stake in the department store, but Debenhams' market value has tumbled 64% in the year to date.
Thursday 19 July 2018 16:55, UK
Annual profits at Mike Ashley's Sports Direct have plunged by 73% after the company took a 拢85.4m hit on its holding in Debenhams.
Sports Direct reported profit before tax of £77.5m for the year to 29 April despite revenue rising 3.5% to £3.4bn - boosted by sales outside Europe.
UK sports retail sales fell 2% to £2.2bn while its wholesale and licensing division saw revenues tumble almost 23% to £186.3m.
It was the write-down on the value of its Debenhams holdings that caught the eye.
Sports Direct chief executive and majority shareholder Mr Ashley began building a 29.7% stake in the department store chain in 2017 - stopping short of the 30% threshold that would require moves towards a takeover.
Debenhams has since bled market value - down 64% in the year to date alone - amid the pressures that have been facing the high street.
A surge in costs from wage rules, business rates and rents have combined with tougher times for shoppers to squeeze their finances.
:: Debenhams shares slide on credit insurer woes
Sports Direct chairman, Keith Hellawell, said: "In terms of statutory reporting, our profit before taxation has reduced by 72.5%, which arises predominantly from the profit on sale of the Dunlop business and the profit on the sale of JD Sports shares included in the results for the prior period and the recognition of the net losses on our strategic investment in Debenhams in the current period."
Mr Ashley and Mr Hellawell have been working to turn around Sports Direct's image since 2016, when allegations of dire working conditions and poor pay practices at its Shirebrook warehouse sparked condemnation from shareholders and politicians.
The billionaire tycoon's remarks in the results statement were dominated by reputation.
Mr Ashley, who owns Newcastle United, said of the last financial year: "I am particularly pleased that Sports Direct has not only been named among the 10 companies with the most improved reputation in the UK, but also that we were ranked among the top five in an index of international retailers.
"I'm pleased that our Underlying EBITDA has come in at the top end of our expected range at £306.1m as we indicated this time last year, and also that the underlying profit after tax has increased substantially to £104.9m."
Sports Direct shares fell as much as 11% in early trading on Thursday despite signs the company was escaping the worst of the trouble on the UK high street - its main market.
They regained some ground by closing, down 7%.
Chief Financial Officer John Kempster told Sky News he expected its market value to reflect the underlying strength of the business over time.
"Our retail margins are static but there are tougher times ahead", he said, saying Brexit was "an interesting one" and that the company was hedged against the dollar for the next couple of years."
"We're well cushioned", he added.
Neil Wilson, chief markets analyst at Markets.com, said of the company's trading figures: "Underlying earnings before nasties of £306m was at the top end of its guidance and ahead of market consensus.
"Underlying profits after tax were up sizeably at £105m. Revenues were a tad soft but Premium Lifestyle - think Selfridges of Sport - were 43% higher at £162.1m.
"Investors won't see any largesse just yet though as management has decided it won't pay a dividend in the interests of financial flexibility."