Sports Direct, the much-maligned retailer, has lost more than £1 billion ($1.45 billion) of its total value, in just over a week, as a series of negative headlines hit the company, scaring away investors.
Put simply, Sports Direct and its owner and founder Mike Ashley are in a bit of trouble.
Ashley is being sued over a £15 million bet he made in the pub, he’s been accused of nepotism for hiring his daughter’s boyfriend to a senior position in one of his companies, it has been suggested that Sports Direct mistreats its employees, and the company has been forced into issuing a profit warning. And that’s all in the last couple of months.
The list of scandals and alleged misdemeanours from Sports Direct is long, but these are some of the most prominent:
- Mike Ashley gave his daughter’s boyfriend a high-powered job managing a string of properties, and a multi-million pound loan, despite him having no experience in property management.
- In 2013, Ashley bet Merrill Lynch banker Jeff Blue £15 million ($21.8 million) that Sports Direct shares would pass £8 ($11.62) each. When they did, Ashley didn’t pay up, and he’s now being sued.
- The BBC reported that workers at Sports Direct’s headquarters are so scared of being sacked that they have to call an ambulance when they’re ill.
- The Guardian alleged that Sports Direct is effectively paying workers less than minimum wage, which led to Mike Ashley personally committing to reviewing the company’s employment practices, and promising to pay at least minimum wage to all staff, costing the company £10 million ($14.5 million)
But on top of all this, Mike Ashley and Sports Direct have another, far bigger problem on their hands right now. Sports Direct shares are way down.
After reaching something of a peak in August last year, when shares came just short of crossing the £8 ($11.62) mark, the company’s stock has been on a brutal, inexorable downwards slide. At the time of writing shares are trading at £3.84 ($5.58), a loss of 52% in less than five months.
Even more worrying for Sports Direct is that the company’s share crash seems to be accelerating at the start of 2016. In just over six days of trading so far this year, shares have gone from being worth £5.69 ($8.26) at the open on January 4, to substantially less than £4 ($5.81). In other words, Sports Direct has lost a third of its market cap in just over a week. On Tuesday alone, the stock has lost more than 5% of its value.
To put it in terms of market capitalisation — the total cash value of the company — Sports Direct was worth roughly £4.8 billion in August last year, £3.3 billion at the start of 2016, and is now worth just over £2.2 billion. Any way you look at it, it’s absolutely awful.
Pretty much every day in 2016 has been a bust for Sports Direct, but Friday — when the company issued a profit warning, blaming unseasonably warm weather, and fewer shoppers on the high street — was particularly horrible.
Shares plummeted by more than 15% on the day, wiping out nearly another £500 million of value in the process. This morning, shares are falling again, and as of 9:30 a.m. GMT (4:30 a.m. ET) they have dropped just less than 1%, although at one point, close to 5% of the company’s value had been wiped out.
While you might think that losing half of your market cap in less than half a year, and being forced into issuing a profit warning is bad enough, the gloom looks like it will keep coming.
If the company’s stock keeps going the way it’s going, there’s a high likelihood that when the FTSE next does a quarterly review of its constituents, Sports Direct will be relegated from the blue-chip FTSE 100, to the far less prestigious FTSE 250.
A demotion probably wouldn’t cause too much impact to Sports Direct’s broader business, but being listed on the UK’s biggest index is something of a badge of honour for companies.
On top of a possible FTSE demotion, many investors and analysts have seriously started to lose faith in Sports Direct, which in turn will probably lead to an even bigger fall in the firm’s shares. On Friday, analysts at Cantor Fitzgerald sent a note saying:
“In view of the lack of transparency on strategy and in view that the company is likely to be eliminated from the FTSE 100 over the next quarter, we are now taking a more cautious view on valuation.”
Analysts at Liberum pointed out that Sports Direct is stuck in a bit of a rut, saying: “While the latest update only related to weakness over the past month we see a lack of earnings momentum in the short to medium term, and a lack of European mergers and acquisitions.”
So basically, Sports Direct has gotten complacent, hasn’t innovated enough, and is generally in pretty bad shape according to analysts, and that only signals even more value loss in the coming months.
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