Ashley faces sharp profits plunge of 40%
Dec 17 2007 by Peter McCusker, The Journal
MIKE Ashley’s Sports Direct empire looks set to unveil a sharp fall in profits on Wednesday at the close of a turbulent year for the business.
Analysts suggest profits have slumped 40% to just short of £40m in the six months to October at the company owned by the Newcastle United boss.
Last month his sportswear company warned that underlying earnings this year would fall below the £191.8m seen in the 12 months to the end of April, after the England football team failed in its bid to qualify for next summer’s European championships.
And November’s pessimistic update was Sports Direct’s second profits warning since it became a listed company in February, gaining Mr Ashley £929m in the process.
In the latest embarrassment last week, Merrill Lynch – whose investment banking division sponsored Sports Direct’s public debut – advised investors to sell the shares at less than a third of the original 300p float price.
Merrill warned its clients that England’s failure would hit margins as the company slashes prices to get rid of unwanted football shirts.
Analyst Mal Patel has criticised the company for poor communications and a lack of transparency over current updates, adding that “fundamental issues of quality, visibility and sustainability remain unaddressed”.
He has slashed his forecasts of the group’s full-year earnings by 30% to £85m.
Wednesday also sees an extraordinary general meeting set to approve an extension of the company’s share buyback programme, which could allow Mr Ashley to increase his stake in the business to more than 72%.
The billionaire originally floated a 43% stake in the company but has taken advantage of the weak share price to build his holding in the business he founded back in 1982 up to almost 68%. There is also some speculation that Mr Ashley, who is currently Sports Direct’s deputy chairman, will step up to the role of chairman and a high-profile deputy will be appointed in a bid to improve the company’s standing in the City.
As well as Sports World, which boasts more than 460 shops, the Ashley empire includes Lillywhites sports shop and brands such as Kangol and Karrimor.
Mr Ashley has also bought a 29.9% stake in kit manufacturer Umbro to ward off US giant Nike’s attempts to take over the company.
Sharewatch: Page 30
