Ashley fails to make Sports Direct numbers add up

‘The lack of visibility and the high level of uncertainty raise the risk profile of Sports Direct even further’

THE City has sounded the alarm about the fate of Mike Ashley’s retail empire after it delayed its financial report, blaming the takeover of House of Fraser and renewed scrutiny of old accounts.

Sports Direct, which includes a stable of other brands as well as the sportswear retailer, was due to publish results on Thursday. It could now take more than a month for them to be released.

Shares fell as much as 16pc yesterday before regaining some ground to close 9.5pc lower at 238.2p. The high street giant, which made a £90m swoop for House of Fraser after it fell into administration last summer, blamed the delay on “complexities” in the integration of the department store chain. It warned there was “uncertainty as to the future trading performance of this business”.

It also pointed the finger at its auditor, Grant Thornton, for the delay, saying the accountancy firm faced increased scrutiny of its work for the retailer by the financial watchdog.

“The lack of visibility and the high level of uncertainty raises the risk profile of Sports Direct even further,” said Graham Renwick, an analyst at Berenberg. “House of Fraser is clearly a disaster area,” said Nick Bubb, an independent retail analyst. “This is a serious situation.”

Peel Hunt’s Jonathan Pritchard added: “House of Fraser is clearly in a degree of disarray. It would appear the finance department is understaffed to cope with the array of acquisitions, and we are also concerned about the direction of the core business.” Sports Direct has recently bought Evans Cycles and Sofa.com. It has stakes in fashion business French Connection and five-a-side football pitch business Goals Soccer Centres and is poised to take over Game Digital in a £52m deal.

Another analyst suggested Sports Direct could be taken private, given that Mr Ashley has a 61pc stake, if trading deteriorates further.

Excluding House of Fraser, Sports Direct previously said it expected underlying profits to rise between 5pc and 15pc. Mr Ashley, who founded the retailer in 1982, has said he wanted to turn the department store chain into “the Harrods of the high street”. However, there has been little evidence to suggest the transformation is on track after tracksuits and discounted wares made their way into the shops.

Yesterday’s delay highlights the challenge Sports Direct faces in attempting to revive House of Fraser. Earlier this month two key lieutenants, including Karen Byers, the head of retail, resigned from Sports Direct. In May the company confirmed it sold its HQ in Shirebrook, Derbyshire, for £120m to a Malaysian pension fund. The Financial Reporting Council is investigating Grant Thornton’s previous audit of Sports Direct’s 2018 accounts and one of its employees after it failed to disclose a business relationship between Mr Ashley and his brother.

The audited results for the year to April are now expected to be published between July 26 and Aug 23.

Grant Thornton and the FRC declined to comment.

Mike Ashley claims it is “very boring”, but there’s never a dull moment in Shirebrook. The former Derbyshire colliery town is now best known as the Sport Direct tycoon’s favourite place to dig himself into deep holes. Lately he seems hell-bent on his own tracksuit-clad journey to the centre of the Earth.

Bizarre announcements from Sports Direct are nothing new, of course. Barely a week goes by without the retailer troubling its shareholders with some foolery, often requiring correction via a further announcement within hours. On some level, investors who have remained on board to indulge the madness of King Mike must enjoy the show.

Yet perhaps, at last, Ashley’s excesses are catching up with him.

Just consider developments at Shirebrook over the last fortnight. First, the long-serving head of retail operations, Karen Byers, a woman described by the founder of Sports Direct himself as “the glue that holds it all together”, suddenly left the business.

Days later it was revealed that Cameron Olsen, the company secretary, stepped down on the same day, for personal reasons.

Two senior departures in quick succession could just be bad luck. But yesterday’s announcement that the company’s financial report will be delayed by up to a month is a signal of serious problems.

Naturally, on planet Ashley, he is not the author of this crisis. The update identifies more culprits than a Sports

Direct security guard, yet few can be found in Shirebrook.

Sports Direct is apparently unable to produce its accounts as scheduled because of regulatory scrutiny of audits and its auditor, Grant Thornton.

In fairness, Sports Direct does admit that “the current uncertainty as to the future trading performance of this business” is a factor too.

However, when a listed company discovers it is missing its targets it normally rushes out the announcement to keep the stock market informed. Sports Direct instead claims it as a reason to keep its investors in the dark.

On top of that, Ashley argues that the takeover of House of Fraser, a move he planned and plotted for months before the department store chain collapsed into administration last year, has also made producing reliable accounts on time too difficult.

Does this amount to an admission that he has overreached himself by acting as the high street’s grim reaper, harvesting whatever value he can from damned retailers? Does it mean the end of his tantrums over Sports Direct’s failure to seize control of Debenhams before it fell into the hands of its lenders, a gamble that squandered tens of millions of pounds? Surely Ashley can now see collecting more stricken businesses is likely to add to his own troubles?

The answers are now beside the point. Sports Direct’s failure to deliver its results on time and the scattergun of excuses that accompanied the announcement was rightly received as a sign of problems at the centre of the Ashley empire.

Behind the bluster, the announcement hinted that the core Sports Direct business is failing to meet its forecasts. Investors marked the shares down by 9.6pc, to leave them close to their lowest level since 2012, but that was a guess.

The true extent of Ashley’s challenges will not be known until he has finished arguing with Grant Thornton some time between July 26 and Aug 23.

In a normal listed company with proper governance, at that point Ashley would have some very difficult questions to answer. Sports Direct is not a normal listed company, however, and Ashley’s power is complete.

With the share price headed south, a management and board stuffed with cronies, and a baffling obsession with buying distressed retailers, it is now impossible to escape the conclusion that Sports Direct does not belong on the stock market.

Thanks to its decline, Ashley could end the farce and take it private for half a billion pounds, a third of what it would have cost him four years ago. Shareholders would grumble, but Sports Direct has always been famous for its giant mugs.

‘Naturally, on planet Ashley, he is not the author of this crisis’