Join our community of smart investors

What to expect from Frasers’ results

The group formerly known as Sports Direct remains interested in investments and acquisitions
August 17, 2020

For the second year in a row, Frasers Group (FRAS) has delayed the release of its full-year results. Having blamed last year’s wait on the complexities of integrating its House of Fraser acquisition, the company formerly known as Sports Direct was less specific in its delay announcement this time, citing the need to complete accounting disclosures. It will now deliver its final figures on Thursday 20 August. 

IC TIP: Sell at 284p

Unpredictability is altogether too predictable these days when it comes to Frasers. Its majority owner, Mike Ashley, has a habit of courting negative press, attracting scrutiny over his unpopular ownership of football club Newcastle United and working practice allegations at Sports Direct. The company is relentless in its pursuit of acquisitions, with varying degrees of success, and it is not afraid to lobby aggressively against regulation.

Much of this is relevant when assessing Frasers’ investment potential. But at the same time, it is important to treat with caution analysis that may be coloured by a simple dislike of Mr Ashley.

Frasers hasn’t provided much detail on what to expect within its results, since a March update that withdrew guidance and abandoned a target of 5 to 15 per cent cash profits growth. As the coronavirus took hold, the company closed stores and suspended a share buyback programme. 

The pandemic hasn’t stopped Frasers from pursuing investments and acquisitions, however. The company has been building a stake in Hugo Boss since June, and the Mail on Sunday has linked Mike Ashley to a deal that would see him acquire 30 stores from the embattled Debenhams. We’re interested to hear the rationale for such a plan, given Frasers’ travails with House of Fraser, which it bought out of administration in 2018. 

It pays to remember that, for all of Frasers’ attempts at growing the premium side of its group, the profits still predominantly come from its sports business. Its UK sports division, which includes Evans Cycles and Jack Wills - another intriguing acquisition - alongside the flagship Sports Direct brand, accounted for 59 per cent of revenues over the six months to 27 October 2019. The segment provided a stonking 85 per cent of operating profits. 

The sports retail division’s store portfolio almost doubled from 486 sites at the end of October 2018 to 879 the following year. Frasers had already banked £126m from site disposals during the first half, and we think news of more exits from sites is likely in the coming results.

Frasers is likely to provide detail on how it has kept costs down during the crisis, particularly given that its operating expenses rose by a fifth at the end of the first half, compared to the prior year. The integration costs of servicing its M&A activity may also dampen profits, while Frasers’ stock as a percentage of revenue has been tracking upwards in recent years, suggesting that there may be a need to clear some inventory.