Shambles at Sports Direct

A chaotic set of results at Sports Direct last week wiped a fifth off the shares and fuelled speculation that the company will be taken private. Alex Rankine reports

Mike Ashley,  founder of Sports Direct International Plc © Chris Ratcliffe/Bloomberg via Getty Images

Mike Ashley wanted to save the high street, says Hannah Uttley in the Daily Mail. Yet the Sports Direct (LSE: SPD) mogul's dreams of returning struggling chains such as House of Fraser to past glories is "turning into a nightmare". Last week's biannual results "set a new low" for Ashley's relations with the City, says Ashley Armstrong in The Times. Management admitted that House of Fraser, which was purchased last year for £90m, may be in "terminal decline". Ashley lashed out at retail foes, restructuring advisers and the government. He also made a "curious recommendation that chief executives should have drug tests to protect them from blackmail". To top it all, he revealed that Sports Direct has been served with an unexpected £600m Belgian tax bill, equivalent to more than five times his firm's profits. The shares slumped by a fifth and have now lost 77% of their value since peaking at 922p in 2014.

The firm has also fallen out with its accountants. Grant Thornton intends to quit as auditor following the tax-bill fiasco. That is no surprise, says Lex in the Financial Times. Sports Direct has been snapping up struggling high-street businesses left, right and centre, making accounting a difficult task. Falling operating profit margins and cash flow suggest that the resulting "jumble" has "stretched management's capabilities" too. The days when Sports Direct was a "fast-growing investor darling" are over.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

A case study in failed corporate governance

Even by Ashley's "own bizarre standards", the latest "omnishambles is a new low for UK plc", says Christopher Williams in The Daily Telegraph. Senior management have been jumping ship Friday brought news that the chief financial officer is also leaving and a £5.35m pay package for Ashley's future son-in-law has stoked further criticism. Sports Direct is now "almost a case study in failed corporate governance", says David Cumming of Aviva Investors. "Anyone who cares about proper oversight, control and governance... shouldn't really be an investor in this company."

Ashley's City critics could be getting carried away, says Joe Curtis in City AM. Analysts at Liberum, an investment bank, maintained a buy rating on the shares, noting that the group's attempts to move upmarket from its "stack 'em high, sell 'em low" roots is yielding results. "The core business has been robust against a challenging backdrop and the balance sheet remains strong." Recent failures may encourage Ashley to put empire-building on the back-burner and focus on the retail basics at which he excels, adds Neil Wilson of markets.com.

Advertisement
Advertisement - Article continues below

The question now is whether brave investors will be able to buy into Sports Direct for much longer, says The Guardian. Ashley already owns more than 60% of the business. Friday's excruciating "farce" was "neither typical nor becoming of a listed business". Despite protestations to the contrary, "Ashley must be considering taking the business private and probably has the liquidity and financial contacts to make it happen".

Britain's ten most-hated shares

CompanySectorShort interest on31 July (%)Short interest on8 July (%)
Kier GroupConstruction11.59.9
Anglo AmericanMining9.99.6
DebenhamsGeneral retailers9.59.5
AASupport services9.410.5
Arrow GlobalFinancial services8.89.9
Babcock InternationalEngineering8.39.9
IQESemiconductors8.38.1
John Wood GroupOil services8.19.7
Thomas CookTravel7.910
PearsonMedia7.6NEW ENTRY

These are the FTSE 100's ten most unpopular firms, based on the percentage of stock being shorted (the "short interest"). Short-sellers aim to profit from falling prices, so it helps to see what they're betting against. The list can also highlight stocks that may bounce on unexpected good news when short-sellers are forced out of their positions. Pearson is the sole new entry this time. It hopes a shift to digital publishing will combat the falling sales of printed textbooks as students turn to the second-hand books market and online resources. This is especially true of the US, which accounts for two-thirds of sales.

Advertisement

Recommended

Visit/517688/the-british-equity-market-is-shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Visit/511212/reasons-for-investors-to-be-bearish-but-stick-with-the-stockmarket-bulls
Stockmarkets

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019
Visit/510684/good-news-on-jobs-scares-stockmarkets
Economy

Good news on jobs scares US stockmarkets

June brought the best monthly US jobs growth of the year, but stockmarkets were not best pleased.
11 Jul 2019
Visit/510135/trade-war-ceasefire-boosts-stockmarkets
Economy

Trade-war ceasefire boosts stockmarkets

Stockmarkets sighed with relief after the G20 summit in Japan brought a handshake between Donald Trump and Xi Jinping.
4 Jul 2019

Most Popular

Visit/investments/property/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020
Visit/investments/stockmarkets/601101/has-the-stockmarket-hit-rock-bottom-yet
Stockmarkets

Has the stockmarket hit rock bottom yet?

The world's stockmarkets continue on their wild and disorientating rollercoaster ride. Investors are still gripped by fear. So, asks John Stepek, have…
2 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/investments/commodities/energy/oil/601107/oil-shoots-higher-have-we-seen-the-bottom-for-the-big-oil
Oil

Oil shoots higher – have we seen the bottom for the big oil companies?

Just a few days ago everyone was worried about negative oil prices. Now, the market has turned upwards. John Stepek explains what’s behind the rise an…
3 Apr 2020