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Sports Direct smashes targets

RESULTS: Retailer Sports Direct has shrugged off a disappointing European Championships to smash its employee bonus targets and the shares look attractive
July 23, 2012

Another profit warning from JJB Sports stood in stark contrast to strong full-year results from rival Sports Direct. While JJB blamed its problems on poor weather and disappointing sales of replica football kits, Sports Direct shrugged these aside to easily hit the £225m cash profit target underpinning executive deputy chairman and major shareholder Mike Ashley's £8m bonus scheme. Unlike the retailer's products, the shares are pricey compared with peers but, with management re-iterating its 2013 cash profit target of £270m, that's more than justified.

IC TIP: Buy at 294p

Underlying cash profits for 2012 were in fact up 11.7 per cent to £240.5m, and would have been higher still were it not for losses from its new premium lifestyle division – it made cash losses of £7.8m on sales of £73.5m last year. But Sports Direct is confident that the newly created division – which includes the assets purchased from USC last year, and Flannels, the niche fashion retailer acquired after the period ended – can be returned to profit by 2013, as it's integrated into its supply chain. Sports Direct also expects improved trading at remodelled stores and an uplift from access to the group's ever-improving e-commerce capability.

That's also proving key to continued growth in its core UK sports retail business. Online sales there climbed a massive 82 per cent to £174m, increasing the proportion of web sales to 11.6 per cent from 7 per cent a year earlier. The rise in internet sales combined with a £3.8m reduction in operating costs to lift cash profits from the division by an impressive 18.4 per cent, well ahead of the 8 per cent overall divisional sales growth. Investment in new distribution facilities should improve efficiency further, with work on a 1m square feet dedicated online warehouse due to start soon.

Broker Seymour Pierce expects underlying pre-tax profit of £195m for 2013 and EPS of 22p (2012: £153m/19.2p).

SPORTS DIRECT INTERNATIONAL (SPD)

ORD PRICE:294pMARKET VALUE:£1.76bn
TOUCH:293-294p12-MONTH HIGH:316pLOW: 189p
DIVIDEND YIELD:nilPE RATIO:16
NET ASSET VALUE:79p*NET DEBT:31%

Year to 29 AprTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20081.2611912.24.50
20091.3610.6-2.801.22
20101.4512015.7nil
20111.6011914.8nil
20121.8415118.7nil
% change+15+27+26-

*Includes intangible assets of £225m, or 38p a share