So what has the House of Fraser acquisition meant for its new owners?
The first answers came in Sports Direct International’s half-year results, out today, which showed a boost to sales but a hit to bottom-line profits – and a repeated assertion from chief executive Mike Ashley that House of Fraser may have been trading while insolvent.
Group revenue came in at £1.8bn in the six months to October 28, up by 4.5% on the same time last year. Within that, House of Fraser sales came in at £70.1m, in the period between its acquisition out of administration by Sports Direct on August 10, to October 28. Its acquisition of Evans Cycles came after the end of the half-year.
Across the group, reported pre-tax profits of £74.4m were up by 62.4% on the same time last year, but underlying profits of £64.4m were down by 26.8% on last time.
Ashley said: “During the reporting period we acquired the trade and assets of House of Fraser and I would like to welcome my new colleagues to the Sports Direct Group. I have made my views clear that I believe the previous House of Fraser senior management traded the business whilst it was insolvent for a long time, this means we have significant challenges ahead in turning House of Fraser around. However, I genuinely believe we have acquired a fantastic opportunity and with the efforts of Sports Direct and House of Fraser teams, and the support of the brands, local councils and landlords, we can turn House of Fraser into the Harrods of the High Street.
“Outside of the House of Fraser acquisition, the Sports Direct Group has had another successful period, reporting a 15.5% growth in underlying EBITDA to £180.3m. This is impressive in the context of the current struggles in the High Street and shows our elevation strategy continues to go from strength to strength. Excluding House of Fraser we anticipate we will be within our previous communicated underlying EBITDA growth range of 5-15% by year end, including House of Fraser we expect to be behind last year’s result.”
Asked in the results presentation how trading had continued since the end of the period, Ashley said that it had been “unbelievably bad” in November – but Sports Direct subsequently clarified that performance was taken into account in its earnings forecasts.
House of Fraser
Sports Direct bought House of Fraser’s business, including 59 stores, on August 10. As of October 28, it said today, all 59 stores were closing, and one store has since closed.
The House of Fraser website stopped trading during the immediate post-purchase period as systems and processes were reset. Today Sports Direct said it had “spent the post acquisition period working with staff, suppliers, concessionaires and landlords to create a viable business which will be a core part of the elevation strategy of the group.”
Revenue came in at £70.1m in the 11 weeks that House of Fraser traded in the Sports Direct group during the half-year, and gross profit came in at £35.1m. But operating costs of £66.6m meant that underlying earnings were in negative territory at a loss of £31.5m.
UK sports retail sales – through Sports Direct – came in at £1.1bn during the half-year, an increase of 0.2%. Revenue from stores, it said, was down “due to the pressure on the high street and store closures due to the elevation strategy” but that fall was offset by online sales growth. At the same time its operating costs grew by 6.7% to £320.3m as a result of increased provisions for bad debt and in relation to property commitments. Underlying earnings came in at £147.7m, up by 1.5% on last time.
Sports Direct also operates premium retail brands Flannels, Cruise and van mildert. In that part of the business, sales rose by 29.4% to £87.6m, as sales grew online, but operating costs rose by 32.2% to £27.5m as a result of new store openings. Underlying earnings grew to £2.5m from £0.7m last time.
Sports Direct also owns more than a quarter of Debenhams (28.7%), French Connection (26.16%) Game Digital (25.44%), and Findel (29.9%). Today the retail group said it had written down £76.7m of value reductions relating to Debenhams and “various other investments”.
Image: House of Fraser