Investors already know that the current financial year will be miserable for beleaguered sports goods chain Sports Direct International (SPD). However, the ability to bounce back in 2017-18 is now in doubt. Sports Direct is actually far more compromised than observers believe: it's not just about the currency, Brexit, the weather and the slew of poor PR in recent months. It might seem churlish to advise selling a stock whose price has fallen by two-thirds in the past 12 months, but we don't see trends improving in the near term, so there is logic in maintaining our bearish stance.
- Growing property estate
- Decent progress at Brands division
- Currency issues will erode margins
- Poor high street footfall data
- Employment practices
- Rising costs and debt
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.