Debenhams woes hit Sports Direct profits

Sports Direct has seen a 73% drop in pre-tax profit despite an increase in revenue thanks to its investment in struggling department chain Debenhams.

In its preliminary results for the period ending 29 April, Sports Direct said pre-tax profits were £77.5m, down 72.5% from £281.6m the previous year. It said the drop was “largely due to an £85.4m impact from our Debenhams strategic investment”.

Sports Direct currently has a 29.7% stake in Debenhams just shy of the 30% that would require them to make a takeover bid. After a series of profit warnings Debenhams last week was forced to deny it has cash problems amid reports that its credit insurers reduced cover for its suppliers.

However the company did report that on an underlying basis profit before tax increased 34.5% to £152.9m and underlying EBITDA grew 12.2% to £306m.

It also saw a 3.5% increase in group revenue as it reached £3.35bn, boosted by its premium lifestyle retail revenue which increased by 42.7% thanks to an increased store portfolio and online sales. Although on a UK level it reported that retail revenue was down 2%.

Mike Ashley, chief executive, said: “I am particularly pleased that Sports Direct has not only been named among the 10 companies with the most improved reputation in the UK, but also that we were ranked among the top five in an index of international retailers.

“I’m pleased that our Underlying EBITDA has come in at the top end of our expected range at £306.1m as we indicated this time last year, and also that the underlying profit after tax has increased substantially to £104.9m.”

Michael Murray, head of elevation, added: “During FY18, we have seen growth in underlying EBITDA of 12.2%. The elevation strategy continues to exceed expectations. As the property pipeline and brand relationships accelerate, we are confident in achieving between a 5% and 15% improvement in underlying EBITDA for the coming financial period.”