Sports Direct still on a losing streak

Let's start with the company's latest financial results; management was slow to hop on the 'Brexit' bandwagon and blamed a number of "structural difficulties" - including low high-street footfall and the introduction of the new national living wage - to explain why retailers face a continuing uphill battle. The major concern, however, was the decision taken on currency for the current financial year. Sports Direct's bosses decided not to hedge against foreign exchange movements at all. But higher prices as a way to offset the referendum-related drop in sterling's value aren't an option, as third-party suppliers aren't changing their prices and Sports Direct customers are entirely driven by bargains. The logical conclusion, according to City analysts, is that the gross profit margin will be down - some believe by at least four percentage points - in the current year.

The only route to better relationships with suppliers is opening a lot of large, flagship stores and management is clearly minded to do so, evident by its acquisition of the Oxford Street freehold in April 2016. But top-quality city centre real estate doesn't come cheap, nor does it pay back quickly as overheads, refurbishments and investments in staff often offset initial sales. Following the Oxford Street acquisition, Sports Direct's debt is now above £200m. That isn't a problem, but the company needs a large capital-spending programme to open more "key location doors" like Oxford Street.

The logic goes that if such stores don't pay back quickly and cash profit falls in the meantime, debt will increase over the next couple of years. As a reminder, last year's numbers threw up a 5.2 per cent rise in operating costs (due to higher wages, a new warehouse in Shirebrook and the integration of other acquisitions) which, along with the £7.1m cost of an earlier employees' share scheme, led to a 0.5 per cent dip in cash profit to £381m and an 8 per cent fall in underlying pre-tax profit to £275m.

Finally, management is not having a good run - and not just on the PR side. Most of the bad press has revolved around the company's highly criticised employment practices. That's serious. However, the main concern among City analysts seems to be that the top management team isn't going to change and more nasty surprises such as the hedging decision - a "mistake" in the words of broker Peel Hunt - can't be ruled out. That's why analysts believe the share price will continue its miserable run, especially as they think the shares don't even deserve to trade on an earnings multiple that's well below the average for retailers.