Sports Direct missed its earnings forecast for the year and underlying profit dropped 8.4%, as political and media pressure on the discount sports retailer made trading difficult.
Here are the key facts and figures from Sports Direct’s preliminary results, released on Thursday:
- Revenue up 2.5% to £2.9 billion;
- Underlying earning before interest, tax, and other costs down 0.5% to £381.4 million;
- Underlying profit before tax down 8.4% to £275.2 million;
- Pre-tax profit up 15.4% to £381.4 million;
- Founder Mike Ashley “has no current intention of taking the Company private.”
While revenue and profit improved, the earnings are a big disappointment. Sports Direct put out a profit warning in March saying earnings were likely to be more or less flat on last year but that is a big departure from the company’s normal performance. Between 2014 and 2015, earnings rose by a hefty 14.7%.
As a result of the earnings slowdown, employees have missed out on the company’s share award incentive scheme. Sports Direct says it is looking at implementing a new incentive scheme of some kind.
CEO Dave Forsey calls the overall performance “disappointing” in a statement, blaming “a tough trading environment in the second half across our sports retail businesses.”
At least part of this is down to pressure on Sports Direct to improve its employment practices following an undercover investigation by The Guardian at the company’s Shirebrook warehouse.
The investigation claimed workers were paid effectively less than minimum wage as they were subject to mandatory searches when they left the warehouse.
The paper also alleged a culture of fear. Founder and executive chairman Mike Ashley was hauled before MPs to answer criticism of the company and during the hearing union representatives claimed a woman gave birth in the toilet, accusing the company of “contempt for human rights.”
Chairman Dr. Keith Hellawell addresses all this in Thursday’s update, saying:
“During the year the Group received serious criticism regarding some of its workplace practices, particularly in relation to its agency workers in the warehouse of the Group’s Shirebrook campus, which we have taken very seriously.
“The Board made it a priority to undertake a review of what was raised and from the preliminary findings, a number of measures were put in place to address the concerns. These included an increase in pay for the Group’s directly employed UK employees and directly engaged casual workers from being on the National Minimum Wage to being above the National Minimum Wage from 1 January 2016. This was implemented without any reduction in existing benefits.
“Since the end of FY16, the Group’s Executive Deputy Chairman, Mike Ashley, has given evidence to the Business, Innovation and Skills (BIS) Select Committee regarding the assertions made in relation to the Company’s workplace practices. The business has set in motion a review of the specific concerns.”
Sports Direct also warns that the fall in the pound since the EU referendum result is going to mean profit margins will be hit next year.
It also says it could take a £65 million hit on euro hedging contracts it has if sterling depreciates 10% against the currency. And if all that was not bad enough, the retailer says uncertainty surrounding Brexit will hit consumer confidence and mean weaker High Street sales across the board.
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