Sports Direct finally releases results as Ashley lets rip
Sports Direct chief Mike Ashley let rip about his feelings on House of Fraser and Debenhams when the group finally released its results this afternoon. When they came the results showed that the group had achieved sales growth of 10.2% but House of Fraser had dragged on its profits.
In the year to 28 April the group achieved sales of £3.7bn, up from £3.35bn, last year aided by its recent spending spree, which included House of Fraser, Evans Cycles and Sofa.com. When acquisitions were stripped out sales were down 1.9%.
Group underlying EBITDA decreased by 6% to £287.8m. Excluding House of Fraser, underlying EBITDA grew 10.9% to £339.4m.
When broken down by sector sales were as follows:
UK Sports Retail, £2.187bn, up 0.3%
Premium lifestyle: £204.8m, up 26.3%
House of Fraser: £330.6m
European Sports Retail: £599.8m, down 5.9%
Rest of World Retail: £215.9m, up 12.2%
Wholesale & Licensing: £163.5m, down 12.2%
However the numbers, which had already been delayed before today's additional delay, were perhaps the least interesting part of the update, which included a 7,000 word commentary from the group's unconvenetional CEO Mike Ashely in which he attacked the board and advisors of Debenhams, the previous board of House of Fraser and made demands for all PLC CEOs and CFOs to undergo voluntary drug testing.
Of House of Fraser, which Sports Direct acquired a year ago out of administration, Ashley all but admitted the buy had been a mistake: "[...] as we have continued to look under the bonnet as we integrate the business, we have found that the problems are nothing short of terminal in nature. Serious under investment in stores and appropriate support services, excessive and unsustainable outsourcing and financing, and selling brands to their Chinese parent shortly [Nanjing Cenbest] before administration are just some of the many problems faced.
"The previous Chairman, Frank Slevin exemplified city greed and excess, and as House of Fraser's future became terminal with people losing their jobs and with more to follow, Mr Slevin thought it suitable to retain these extravagances not appropriate to a business in its death spiral."
Upon acquiring House of Fraser Ashely stated an ambition to retain as many of its 59 stores as possible and to turn it into the "Harrods of the High Street", and some stores including Frasers in Glasgow are bring transformed to live up to this billing. However the problems at the business were so great that immediately after the purchase Sports Direct was obliged to shut down its e-commerce business for a while as it sorted out a dispute with logistics provider XPO.
Ashley said the business had worked hard to restore faith with suppliers and that many brands had been understanding. He also expressed his appreciation for landlords willing to do deals on stores however he said that some locations were still failing to make money despite currently paying zero rent.
"[...] unfortunately this is not sustainable. We are continuing to review the longer-term portfolio and would expect the number of retained stores to reduce in the next 12 months.
"On a scale out of 5, with 1 being very bad and 5 being very good, House of Fraser is a 1, albeit we are trying very hard to turn the business around this will not be quick and it will not be easy. Even though we do believe there could be a bright future for House of Fraser, and indeed have publicised our Frasers vision which we are very excited about, if we had the gift of hindsight we might have made a different decision in August 2018."
Ashley did not hold back when it came to Debenhams either. Sports Direct had owned a near 30% stake in the department store chain before it collapsed into administration and was bought by a consortium of its investors. Ashley had made a number of attempts to take control of the business and was rebuffed by its board and directors every time.
"In spite of these valuable repeated offers, Debenhams failed at every opportunity to engage with Sports Direct or to properly consider the proposals put forward save for what we saw as tactical lip service.
"During the restructuring process we were promised information that would be of great value to us in understanding the position the group found itself in and which would allegedly help us to come up with a sound financing proposal. This could not have been further from the truth as the information we received was both late and of poor and incomplete quality and quantity," he said.
Ashley was particularly scathing on the subject of Debenhams' auditors saying: " We note that we understand tens of millions of pounds were paid by Debenhams to those advisors at a time when cash was at a premium – indeed, significant proportions of the funding obtained during the relevant period simply went to pay those advisors' fees. The relevant lawyers, accountants, and other advisors must have well known what was happening and supported the process. They should be held responsible too."
More positive comments were reserved for its Premium Lifestyle division, which includes luxury fashion chain Flannels which has been in expansion mode. "In contrast to House of Fraser, on a scale of 1 to 5 we would rank Flannels as a 4, being good. We think we can push this up to a 5 in the near future with further support from the luxury brands, for the benefit of all stakeholders.
"As part of the Elevation Strategy led by Michael Murray, Flannels stores and website continue to go from strength to strength. As part of the Premium Lifestyle division they have grown from sales of £60.4m in FY17 to £173.9 in FY19. Our latest stores, including in Newcastle, highlight our premium offering which is bringing much needed investment and success into the UK High Street," Ashley said.
In one of the more outlandish passages of his statement Ashley said: "We have also noted to the FCA that we believe that there should be a voluntary drug test for CEOs and CFOs of listed companies. Having such undisclosed personal issues could lead to blackmail and force CEOs and CFOs to make decisions based on saving their own skin and potentially reducing shareholder value."
As well as the results, Sports Direct announced that its CFO Jon Kempster will stand down on 11 September and will be handing his responsibilities to Chris Wootton, the current Deputy Chief Financial Officer. It also announced a £30m share buyback scheme that will run until its 11 September AGM.
Earlier today analysts dubbed the business a "total shambles" for promising to release its delayed results at 7am and then cancelling analyst meetings at the last minute. In the event the results were released just after markets closed.