Ashley group says it will beat setback

Apr 25 2008 by Iain Laing, The Journal

NEWCASTLE United owner Mike Ashley’s sports retail company insisted yesterday it was on course to hit profit targets despite a tough market which has hit rivals hard.

Sports Direct, the owner of retail chain Sports World and Lillywhites drew a mixed reaction from the City when it said it was still confident of delivering the £148m expected for underlying earnings in the year to April 27.

The company appears to be performing well in a slow retail environment which this month saw its rival JJB announce a 28% fall in profits to £33.8m, the closure of 72 shops and the loss of 800 jobs.

But analysts were disappointed yesterday by Sports Direct’s failure to provide more details on sales and how it achieved the earnings figure. The company – mainly owned by Ashley, who founded it in 1982 – has been criticised in the past for lack of communication.

Philip Dorgan, a retail expert at Panmure Gordon stockbrokers, said of the update: “One would expect cost and margin control to be offsetting sales pressures – for which management deserves credit.

“However, given that it is not possible to judge the degree to which sales weakness has been offset by other management actions, this is of little use in assessing the company’s prospects or the quality of the management team.”

He said the company’s failure to provide more details was a pity, given that the market was warming to the firm after a rocky start to life as a listed company.

It has downgraded profits expectations over the year, but pleased investors last January by restoring City targets to about £148m. Shares have tumbled from their 300p flotation price in February last year after the firm was hit by falling sales amid a consumer spending downturn and yesterday they fell another 2% to 110p.

The impact on replica kit sales caused by England’s failure to qualify for Euro 2008 is expected to cost it about £70m in lost earnings.

The owner of rival sportswear retailer JD Sports – in which Mike Ashley has a 10% share – this month bucked the downward trend by announcing annual profits had jumped 103% to £356m. It is much less reliant on replica kit sales.

Analysts at Citi said Sports Direct’s retail division was expected to post an 11% fall in annual sales to £1.04bn, with like-for-like sales off 20% and the contribution from new space adding 9%.

For the brands division, Citi is forecasting an 18% improvement to £203m. The company owns brands including Donnay, Dunlop, Slazenger and Kangol. It has major licensing deals with England replica shirt manufacturer Umbro.