Sports Direct International PLC (LON:SPD) shares stumbled on Thursday after the sportswear retailer posted a 27% drop in first-half profits.
Much of the fall was down to the £90mln August buy-out of House of Fraser, with the department store chain racking up losses of £31.5mln since it came on board.
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Revenue rose 4.5% to £1.79bn in the six months ended 28 October (H1 17: £1.71bn), but underlying pre-tax profits plunged to £64.4mln from £88.0mln a year earlier.
Excluding House of Fraser, Sports Direct told investors it is on track to hit its target of growing underlying earnings (EBITDA) by 5-15%, but including the loss-making recent addition, full-year results will likely be behind those achieved last year.
Harrods of the high street
“I have made my views clear that I believe the previous House of Fraser senior management team traded the business whilst it was insolvent for a long time, this means we have significant challenges ahead in turning House of Fraser around,” said chief executive Mike Ashley.
“However, 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.”
During the period, Sports Direct also wrote down the value of its investments in Debenhams PLC (LON:DEB) and other companies by £76.7mln.
Much like its peer, House of Fraser, Debenhams, which Sports Direct holds a 29.7% stake in, has struggled of late as people desert the high street in favour of shopping online.
High street bet a ‘brave call’
“The core business of Sports Direct is holding up pretty well in challenging conditions for the high street, but House of Fraser has proved to be a fly in the ointment,” said Hargreaves Lansdown analyst Laith Khalaf.
“That’s only to be expected given the collapse of the department store, because turnarounds don’t happen overnight.”
“Raising Sports Direct’s already substantial bet on the high street would look like a brave call in a cyclical downturn, but in the structural decline we are seeing on the back of the digital shopping revolution, it looks positively quixotic.”
Sports Direct shares were down 3% to 267.9p in mid-morning trading on Thursday.