0902 Thursday 13 December 2018
There are two ways that you could interpret the Sports Direct profit report released this morning. On one hand, the UK High St. retailer recorded a 15.5% increase in earnings for the first-half of 2018 if you don’t include acquisitions… but as we know, acquisitions have been a key factor of Mike Ashley’s operations this year. Once you do include the purchase of House of Fraser however, the figures become skewed to show a 27% fall in half-year profits. Adding to this, the report showed that the rescued department store had amassed £31.5m in losses since its takeover in August and the company saw "significant challenges" in transforming its fortunes. In a statement, Chairman Mike Ashley was quoted as saying “I genuinely believe we have acquired a fantastic opportunity and with the efforts of Sports Direct and House of Fraser teams, and the support of the brands, local councils and landlords, we can turn House of Fraser into the Harrods of the high street".
If you do hold the acquisition of House of Fraser on one side, it must be noted that Sports Direct’s performance has defied the fate of other UK retailers in recording a profit. The underlying pre-tax profit of £64.4m in the first half of the year place the company on track to meet its target of growing earnings by 5-15% for the full year, with Mr Ashley describing the performance as "impressive in the context of the current struggles in the high street". The key strength that Sports Direct holds on the High St. is the way they incorporate all of the brands and services held under the company’s umbrella, including the higher end Flannels brand and the acquisition of Evans Cycles being added to the portfolio. This should give investors hope for the future of House of Fraser as Ashley has proven that he knows how to amalgamate for the greater good of the bottom line.
As the report came out, shares in SPD.L initially dropped by over 3% before rebounding to 271.50 (-1.74%). Liberum Capital were the first broker to make an analysis of this morning’s report and reiterated their Buy recommendation and their 520.00 target price for the stock.
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