If Sports Direct (SPD) had any die-hard supporters left, they've failed to show their loyalty following a currency-related profit warning from the retailer last week. Following the 'flash crash' in the value of sterling on 7 October, Sports Direct issued an update to investors where it warned that "in light of recent downward currency movements" the company had entered into a hedging arrangement with respect to the sterling versus US dollar rate.
However, "extreme movements" had resulted in "a crystallisation of that rate at 1.19" instead of the forecast 1.30, resulting in a negative impact of "approximately £15m" on the company's expected full-year 2017 underlying cash profits. In addition, if the GBP/USD rate is 1.20 on average for the remainder of the financial year, the negative impact on the group's full-year underlying cash profit figure would be in the order of a further £20m.
The shares fell around 10 per cent in reaction to this, and analysts at Peel Hunt called the currency-related downgrades "a microcosm of where Sports Direct is at the moment". According to the brokerage, management needed better hedging plans, and has now "come unstuck" with this being "yet another item on the list of the downgrade-causing, gung-ho strategy".
