Sports Direct gets to grips with House of Fraser

Excluding the recent House of Fraser acquisition, adjusted cash profits rose by 15.5 per cent – slightly ahead of management’s expectations – but broker Liberum still cut FY2019 and FY2020 forecasts to include the lossmaking department store. Analysts there now expect pre-tax profits of £124m (previously £179m) for the year ending April 2019, giving EPS of 16p, compared with £153m and 19.8p in FY2018.

Operating anywhere on the high street is tough right now, but Sports Direct’s order is taller than most since it acquired all trade and assets of House of Fraser in mid-August. As at the period-end, all of House of Fraser’s 59 stores were still trading, although one site did close its doors in November. Now, work begins on integrating the beleaguered chain into Sports Direct’s broader “elevation” strategy, which will see it move the brand upmarket. Chief executive Mike Ashley intends to turn House of Fraser into the “Harrods of the High Street”, although the success of that strategy depends on the support from brands and suppliers, as well as the co-operation of landlords and local authorities – particularly when it comes to renegotiating rents and rates.

For now, Sports Direct reports House of Fraser numbers separately, but it could eventually be absorbed into the “premium lifestyle” division. That segment – which includes brands such as Flannels and Cruise – grew sales by more than 29 per cent during the first half to £87.6m, while gross margins expanded from 31.8 per cent to 34.2 per cent. Despite higher operating costs, underlying cash profits soared by a whopping 257 per cent to £2.5m.