Sports Direct faces "significant challenges" in House of Fraser turnaround

Sports Direct boss Mike Ashley has said the company faces “significant challenges” turning House of Fraser around, as profits took a hit from the department store acquisition.

The group’s underlying pre-tax profits dropped 26.8% to £64.4m in the 26 weeks to October 28, the period in which it acquired House of Fraser out of administration.

However reported pre-tax profits were 62.4% higher at £74.4m and underlying earnings excluding House of Fraser were up 15.5% at £180.3m.

Group revenue grew 4.5% to £1.79bn, reflecting growth of almost 30% in both premium lifestyle sales and non-European retail as well as the £70m added by House of Fraser.

Ashley reiterated his pledge to make House of Fraser the Harrods of the High Street, but said it would be a challenging process.

“I have made my views clear that I believe the previous House of Fraser senior management team traded the business whilst it was insolvent for a long time. This means we have significant challenges ahead in turning House of Fraser around,” he said.

“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.”

Shares in the company collapsed after Ashley said at a meeting on Thursday that November trading had been “unbelievably bad”.

The company later issued a clarification, saying its expectation of 5%-15% growth in underlying earnings for the full year had taken this into account. Shares were 16.6% lower in afternoon trading.

Sales in the UK sports retail segment, which accounts for 62% of group revenue were up by 0.2% in the period.

This reflected growth in online sales but a drop in store revenue, partly due to store closures which were part of the group’s elevation strategy as well as the overall challenges facing the high street.

Speaking to the Press Association, Deputy chief financial officer Chris Wootton said the group was not immune to the problems in UK retail. “It’s not all sunshine and roses,” he said.

His sentiments echoed Mr Ashley’s warning to MPs earlier this month when he said the majority of the high street is “already dead”.

Wootton also said that the group’s investments in other high street retailers including Debenhams, French Connection and Game were “long-term strategic investments where we’re looking to collaborate”.

It has long been speculated that Ashley would stage a takeover of Debenhams, in which Sports Direct has a 29.7% stake.

During the period, the group recognised £76.7m of value reductions relating to Debenhams and other investments.

Words and image: Press Association