Mike Ashley may not be “Obi Wan Kenobi in charge of the Death Star” but the colourful founder of Sports Direct seems confident that the Force is with the retailer.
Following a slew of acquisitions and plans for further expansion, Ashley said the company is on track to become the “Selfridges of sport" even as the company reported a drop in 2017 underlying earnings (EBIDTA) and pre-tax profit.
A slump in the pound following the UK’s vote to leave the European Union has hit the group’s earnings and margins.
While the sportswear retailer remains cautious on the uncertainty of Brexit and its impact on the pound, it has guided towards a return to EBITDA growth of 5-15% in fiscal year 2018.
Investors responded positively to the guidance, with shares rising 9.28% to 328.61p in midday trading.
Ashley, who stepped in as chief executive after the resignation of Dave Forsey late last year, said the firm has put in place hedging arrangements to minimise the short-term impact of currency volatility.
“We will continue to invest and make decisions for the long term, whilst trying to conservatively manage the currency volatility that is reflected in our full year results,” he said in his full year results statement
Sports Direct puts plans in motion to become 'Selfridges of sport'
As part of its expansion, Sports Direct has bought 50 stores in the US under the Bob’s Stores and Eastern Mountain Stores brands. Last week it announced it was buying a 25% stake in struggling video games retailer Game Digital PLC. (LON:GMD).
Sports Direct also has stakes in French Connection (LON:FCCN) and department store chain Debenhams(LON:DEBS), Findel PLC (LON:FDL) and JD Sports PLC (LON:JD.).
On top of that, it has invested £317mln in property assets with the view to open more stores.
Ashley announced today the company has agreed a new strategic partnership with Japanese footwear brand Asics, which will take space inside Sports Direct’s flagship stores.
To support Ashley in his plans to grow the business, he has hired Jon Kempster as chief financial officer. Kempster, who was previously finance director at Wincanton, will join the board on 11 September.
Sports Direct taking positive steps towards growth, says analyst
Liberum raised its rating to ‘buy’ from ‘hold’ and lifted its target price to 380p from 310p, saying there has been a “significant improvement” at the senior management level and that the company was taking the right steps towards growth.
“The strategic partnership with ASICS, the stake in Game Group and the appointment of a CFO are just three of a larger number of positive steps undertaken,” the broker said.
“The prelims have been impacted by a number of well-flagged factors but we take encouragement that the right decisions have been made to ready the business to grow from a more sustainable level.”
Sports Direct faces challenging UK retail market
However, as Ashely pointed out, the company faces a few risks to its strategy.
For one, UK retailers are having a tough time at the moment as consumers feel the pinch of rising inflation and lacklustre wage growth. The weaker pound will also continue to weigh on margins, putting pressure on keeping prices low for shoppers to order to fend off mounting competition from online rivals such as ASOS.
“The retailer is trying to reinvent itself into the Selfridges of sports in the UK, while at the same time launching in the US, and fighting off concerns from shareholders and MPs about corporate governance and working conditions in the UK,” said Laith Khalaf, senior analyst at Hargreaves Lansdown,
“All this while the weak pound is increasing costs, and the British consumer is facing rising inflation and weak wage growth, not a pretty combination for the price-sensitive shoppers who turn to Sports Direct for a bargain.”
Mike Ashley says he's not Obi Wan Kenobi
Meanwhile, Sports Direct has been trying to revamp its image following a string of scandals. Last year MPs accused the retailer of not treating its employees like humans, saying its working practices were similar to those of a Victorian workhouse.
More recently, Ashley has been involved in a legal spat over what he allegedly said during a boozy session at London pub.
Ashley’s former colleague Jeff Blue claimed in a High Court case that during a drunken night out the entrepreneur had promised him £15mln if he helped boost Sport’s Direct’s share price by double in three years.
Ashley said that if he did make such an offer it would have been just “drunk banter” while admitting to being a “power drinker” following reports that he once vomited in a fireplace at a pub meeting.
The billionaire, who also owns Newcastle United, added that he wouldn’t be able to sanction such an agreement on his own as he is “not Obi Wan Kenobi in charge of the Death Star”. For those who don't know, this was in reference to the Star Wars movie franchise.