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Sports Direct warns tough times ahead after Brexit knocks profit
December 8, 2016 / 7:22 AM / a year ago

Sports Direct warns tough times ahead after Brexit knocks profit

LONDON (Reuters) - Sports Direct (SPD.L) ended a tough 2016 with a warning that trading was not going to get any easier next year after a slump in first-half profit, sparking another fall in its shares.

A man cycles past a Sports Direct store on Oxford Street in London July 22, 2016. REUTERS/Paul Hackett

The sportswear chain founded by Newcastle United soccer club owner Mike Ashley was badly caught out by the fall in the pound which followed Britain’s vote to leave the European Union in June as it pays for its own-brand stock from Asia in dollars.

Sports Direct said on Thursday this had had a significant impact and its underlying profit before tax fell 57 percent to 71.6 million pounds ($91 million) in the 26 weeks to Oct 23. Group revenue increased by 4.2 percent on a currency neutral basis.

The period coincided with a period of intense political and public scrutiny of the retailer, which is still battling criticism of its working practices and treatment of workers.

Ashley, who owns 56 percent of the company and took over as chief executive after long-time stalwart Dave Forsey resigned in September, acknowledged the last six months had “been tough for our people and performance”.

“What matters most to me is how tough the last year has been for the people who work at Sports Direct,” he said.

British lawmakers criticised the company in July for “appalling” working conditions “closer to that of a Victorian warehouse than that of a modern retailer”.

An independent review commissioned by the company found “serious shortcomings” in practices at its warehouse in Shirebrook, central England, which it is taking steps to tackle.

Staff may have one new perk, however, the opportunity to charter at market rates the group’s new corporate jet, which it is buying for $51.1 million.

Sports Direct said the plane, along with the helicopter it already owns, will help it “operate efficiently across its global footprint”.

Shareholders have felt the impact on the group’s reputation, which combined with the damage from the Brexit vote has led to a more than halving of its share price over the last 12 months. The stock was trading down 8.5 percent at 291 pence at 0924 GMT.

The group said full-year 2017 underlying core earnings would be around the bottom of its guidance in October of a range between 265 million and 285 million pounds as it saw no let up in the difficult conditions facing it in the medium term.

Analysts at RBC Capital Markets, who have an underperform rating on the stock, said it would be difficult to pass on the currency cost to customers without a significant impact on its volumes as its shoppers tended be very price sensitive.

($1 = 0.7906 pounds)

Editing by James Davey and Alexander Smith

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