Frasers deal hits Ashley profits
RETAIL business Sports Direct is counting the cost of its £90 million bailout of department store House of Fraser, with the acquisition dragging its profits down in the first half of this year.
The firm, which is run by controversial former Rangers FC shareholder Mike Ashley, bought House of Fraser out of administration in August with a pledge from Mr Ashley to turn it into the “Harrods of the High Street”.
Yet while the House of Fraser business generated £70.1 million of Sports Direct’s £1.8 billion revenues during the period ended on October 28, it also made a pre-tax loss of £31.6m.
That fed through to the business as a whole, with Sport Direct’s earnings before interest, taxes, depreciation and amortisation falling by five per cent, from £156.1m to £148.8m. With the House of Fraser figures stripped out the number rose by 15.5% to £180.3m. Overall pre-tax profits, meanwhile, fell by 27% to £64.4m.
Mr Ashley admitted Sports Direct faces “significant challenges” in turning House of Fraser around, not least because he believes the company’s former management had “traded the business whilst it was insolvent for a long time”.
“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,” he added.
Sports Direct chairman David Daly added that the business as whole was “extremely proud” of the House of Fraser acquisition because it had allowed the company to save thousands of jobs “at a time when the high street is under immense pressure”.
“We remain fully committed to striving to build a bright future for House of Fraser on the high street, and we would like to thank the countless brands and suppliers who have offered their support,” he said.
“The acquisition of House of Fraser out of administration is a massive opportunity, and I am confident it will enable us to continue to enhance our strategy of elevation across the group.”
Mr Davis said that the business had “demonstrated our commitment to this goal” when it purchased the freehold to the Frasers building in Glasgow from Strathclyde Pension Fund. The company paid £95m to acquire the building in October, lifting it out of having to pay rent in the process.
Prior to Sports Direct stepping in, House of Fraser had asked the landlords at a number of its 59 stores to reduce their rents in a bid to help keep the business afloat.
Mr Ashley has been involved in further negotiations with a view to securing significant reductions to the company’s total rent bill since taking over.
Mr Davis said Mr Ashley had worked “tirelessly in order to save as many stores and jobs as possible”, adding “we have made it clear that this will require the continued support of landlords and local authorities”.
The House of Fraser branch in Edinburgh, which was housed in a building that was bought by property developer Parabola at the start of this year, closed in September. Drinks giant Diageo is currently in talks about securing the building, which is situated on Edinburgh’s Princes Street, as the location for a planned whisky visitor centre.
So far no other branches have closed down, although the Hull store is expected to close at the end of this month with those in Chichester, Cirencester, Exeter and Shrewsbury expected to follow next year.
In addition to House of Fraser, Sports Direct paid £8m to buy Evans Cycles out of administration following the end of the period under review.
Mr Ashley said the acquisition was “aligned with our previously stated desire to offer the best possible multi-brand and multi-category presentation to consumers”.
“Whilst we are pleased to have rescued the Evans Cycles brand from administration, we continue to believe that in order to save the business some stores will have to close,” he added.
Shares in Sports Direct closed 15% down at 235.4p yesterday.
House of Fraser will enable us to continue to enhance our strategy of elevation