Sports Direct must keep its eye on the ball
FOR all the media circus surrounding its CEO, Sports Direct is an impressive business.
The sporting giant has stores in 22 countries, and clocked up global sales of £3.4billion last year. The dominant UK business is performing reasonably in a tough market. Sales and margins have plummeted at high street rivals, but have been broadly flat at Sports Direct.
The core business reported a 34.5 per cent increase in profit before tax last year, hitting £152.9million.
But there’s a lot to distract investors from the business of selling cheap sports kit to the masses, and it often feels like management’s attention is elsewhere, too.
Results for 2018 included an £85million loss on Debenhams shares – Sports Direct owns almost 30 per cent of the struggling department store, a position it topped up in March.
Sports Direct is also gearing up for a trip across the Atlantic, buying 50 US stores under the Bob’s Stores and Eastern Mountain Sports brands at a time when conditions at home are hardly rosy.
Fortunately, the UK isn’t being completely ignored. The “Selfridges of Sport” initiative calls for new flagship stores, displaying stock in more flattering environments. Better presentation should, in theory, allow the group to charge more for its products and heal Sports Direct’s troubled relationships with major sports brands.
The new stores are “exceeding expectations”, although it’s difficult to see that in the numbers at the moment.
“Elevating” the store estate isn’t coming cheap. While the group still generates plenty of cash, buying new stores is soaking up hundreds of millions of pounds, as is more expensive, higher quality stock.
With debt at 1.1 times cash profits, Sports Direct is far from heavily leveraged, but debt is climbing quickly.
At the heart of Sports Direct is an attractive, cash-generative business, but it seems attention could be even more focused.
Add some tough market conditions, and there are plenty of reasons why it must keep all eyes on the ball.
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