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Sports Direct loses director

Sports Direct International will reveal its third-quarter sales and revenue report on Thursday 19 February.

A shopper with a Sports Direct bag
Source: Bloomberg

Sports Direct had a solid start to the financial year, and the third-quarter sales report will reveal how the retailer faired over the Christmas period.

The first-half figures, released in early December, showed an 11% rise in underlying profits, and the firm reiterated its commitment to achieving its full-year targets. The group has over 430 stores in the UK and 270 outlets in Europe, and the company is always on the look-out for expansion opportunities, which often involves stakebuilding in other retailers.

Sports Direct was founded by Mike Ashley, who now holds a 55% stake in the company after offloading a 2.5% shareholding for £110 million last month. Mr Ashley has agreed not to sell any more shares in the company until June this year, but the market is keen to know what he will do with the cash windfall.

Through the use of financial derivatives, Sports Direct holds a 16.6% stake in Debenhams, and a £43 million position in Tesco. Even though the share price of Tesco has bounced back from its collapse at the end of last year, some traders are concerned the company is being used as an investment vehicle by Mr Ashely. Glasgow Rangers is the latest company that Mike Ashley has been circling, and he has offered the Scottish football team a £10 million loan in the hope it will gain him leverage.

As Chris Beauchamp stated, Sports Direct still has room for improvement in its online division and its European expansion, and perhaps more time should be invested in these areas if Mr Ashley wants to conquer continental Europe like he did with the British sports retail industry.

It was announced this week that strategic development director Jeff Blue will depart the company in March. Mr Blue was in charge of investor relations and assisted Mr Ashley with mergers and acquisition. This departure will halt the company’s expansion overseas for now. 

Sports Direct will announce its full-year figures in July, and the consensus is for revenue of £2.87 billion and adjusted net profit of £221 million. These forecasts equate to a 6.2% increase in revenue and a 15% rise in adjusted net profit. The retailer will report its second-half figures on the same day, and the market is expecting revenue of £1.43 billion and operating profit of £137 million.

Investment banks are very bullish on the stock, and out of the 13 ratings, eight are buys, three are holds, and two are sells. The average target price is £8.15, which is 20% above the current price. Equity analysts are also bullish on its rival JD Sports. Out of the seven recommendations, six are buys, and one is a hold. The average target price is £5.64, which is 14% above the current price.

The share price is encountering resistance at £7 which coincides with the 50-day moving average, and if this level is held the downside support at £6.40 will be brought into play; a move through that mark will make £6 the target. If £7 is cleared to the upside it will then become support, and the £7.60 region will be the target; beyond that traders will look to £8.

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