Sports Direct International PLC’s (LON:SPD) first half profits plunged as the company closed loss-making stores and sold assets, including its stake in JD Sports and Dunlop.
In the six months to 29 October 2017, pre-tax profit fell 67.3% to £45.8mln on a reported basis compared to the same period a year ago when results included £119.7mln in proceeds from the sale of JD Sports shares.
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Underlying pre-tax profit, however, edged up 22.9% to £88.0mln as favourable euro exchange rates and its entry into the US market lifted revenues.
"Whilst our reported profit before tax has been impacted by fair value adjustments and transitional factors such as the disposal of assets in 2017; our underlying profit before tax remains healthy," said chief executive and founder Mike Ashley.
Shares fell 8.7% to 350p in morning trading.
The company has closed loss-making stores and completed its sale of tennis shoe brand Dunlop to Japan's Sumitomo Rubber Industries for US$137.5mln in April.
Revenue boosted by US acquisitions
Group revenue climbed 4.7% to £1.7bn, as growth in its premium lifestyle and international units offset lower sales in the UK retail arm and in Brands - its wholesale and licensing division.
The first half included a £63.9mln revenue contribution from its acquisition of US retailers Bob’s Stores and Eastern Mountain Sports in May.
UK retail revenue fell 1.0%, reflecting reduced online promotional activity and store closures as the retail market comes under pressure from weaker consumer confidence following the Brexit vote.
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Net debt ballooned to £471.7mln at the end of the period from £182.1mln on April 30 on the back of the company’s acquisition frenzy in Mike Ashley’s quest to become the “Selfridges of sport”.
Full year earnings forecast unchanged
Ashley, who is founder and chief executive, said the company plans to open 10 to 20 new flagship stores next year as part of its expansion plan.
"We continue to anticipate that growth in underlying EBITDA during FY18 will be within our forecast range of 5% to 15%,” he said.
Mike van Dulken, head of research at Accendo Markets, said: "The big man may well claim the current strategy is delivering 'spectacular trading performance', with profits +23% on revenues +4.7%, implying healthy margin expansion. However this is only true once you adjust for all manner of things. Like excluding gains from FX (foreign exchange) moves and property sales, and ignoring more significant losses from fair value adjustments to unhedged FX forwards and options contracts, losses on strategic investments and fair value movements on derivatives."
The results also gloss over a big jump in net debt, he added.