Sports Direct eyes further growth despite shares dip

Online demand has boosted half-time profits of Sports Direct. Picture: PA

Sports Direct International, which is controlled by Newcastle United owner Mike Ashley, has grown rapidly during the downturn thanks to its focus on cut-price clothing, brand acquisitions and the demise of rivals including JJB Sports.

The group now wants a greater presence across Europe, where it already operates in 19 countries, and today reiterated that it will not resume paying a regular dividend while it evaluated investment opportunities.

That confirmation and a profit figure that failed to hit the elevated expectations of some analysts pushed shares in the retailer down 12.6 per cent, or 97p, to close at 674p.

First-half results revealed a 17 per cent hike in underlying pre-tax profits to £146.2 million while group sales charged up 23.5 per cent to almost £1.35 billion.

In the UK, there was a 13.4 per cent jump in retail revenues to £903.3m driven by online growth of 43 per cent.

Sports Direct – which operates more than 600 stores in Europe, including 400 in the UK – said that, following the better-than-expected performance in the first half, trading had now reverted to management’s original expectations.

At the firm’s brands division – which includes Donnay, Karrimor and Slazenger – revenues dipped 0.7 per cent to £106.2m in the six-month period.

Analysts at Oriel Securities said: “Solid delivery from Sports Direct but the rhetoric on current trading is not as bullish as usual and we are shaving forecasts. The shares’ momentum is unlikely to persist given the inline nature of the results.”

Cantor Fitzgerald analyst Freddie George noted: “Over the medium term, the company will continue to broaden its ranges. It will also look to enhance its stable of brands, which now cover a broad spectrum of the sports and street-wear market appealing to all age groups and demographics.

“The most-significant opportunity though continues to be the development of the company’s on-line platform.”

But he added: “The stock, which has almost doubled over the past year is due a period of consolidation.”

Brokerage Citi reiterated its “buy” rating on the stock. There also may have been an element of profit-taking behind today’s weak market performance.

Sports Direct believes much of its success is down to the positive impact of a lucrative bonus scheme, which recently rewarded some 2,000 staff with shares worth more than £68,000.

The half-year result keeps the company on track to meet targets under a new four-year bonus scheme, due in the summer of 2015.

The firm also revealed that finance director Bob Mellors will retire at the end of the month on health grounds.