Crispin Odey slashes stake in Sports Direct as Christmas profit warning knocks … – Telegraph.co.uk

Hedge fund manager Crispin Odey has reduced his stake in Sports Direct

The news comes just hours after the sports wear and fashion retailer warned that profits will be lower than expected this year as a result of the warmer weather.

The company said it would fail to meet its target of earning £420m before tax and other costs in the year to April.

The retailer blamed “deterioration of trading conditions on the high street and a continuation of the unseasonal weather over the key Christmas period.”

Shares plunged shortly after the mid-morning announcement, triggering a rare automatic suspension in trading at 12.39pm. The stock resumed trading five minutes later and was down 15pc to 435p by 2pm.

Investors are likely to question the use of the unseasonally warm weather as a reason for lower profits, given the majority of Sports Directs’ products, including running clothes, T-shirts, and trainers, are not winter-focused.

Sports Direct, whose shares closed down more than 15pc on the warning, said instead that it now expected to make between £380m and £420m in adjusted earnings in the current financial year, as much as 10pc below its original guidance to investors.

Shares in the retailer have fallen 47pc since last August. By comparison listed rival JD Sports has seen its shares rise 27.8pc over the same period, despite the two firms largely stocking the same type of products.

Shares in Sports Direct have plunged while those in rival JD Sports have soared over the past year

The retailer’s market capitalisation is now below £2.7bn – a level at which, if it were to continue, Sports Direct would almost certainly fall out of the FTSE 100 at the next quarterly review in March.

The update caught investors by surprise, not least because Sports Direct, for whom the Christmas season is not as important as other high street retailer, does not usually issue a January trading update.

Sports Direct makes a case for good corporate governance; shares 40% down since Aug and another warning. Weak #corpgov costs shareholders.

— Colin McLean (@colinmclean)
January 8, 2016

Analyst James Grzinic at Jefferies said he was ‘confused’ by the warning, coming less than a month after the retailer confirmed the £420m target.

“This feels like a clearing of decks exercise,” he said, adding that more light needed to be shed on key issues before considering a new valuation.

On using the weather as an excuse, Mr Grzinic continued: “Admittedly, recent trading updates by fashion peers have confirmed the ongoing pressure in demand in recent weeks, both in the UK and in Europe. The lack of snow in the Alps certainly represents an added challenge for some European operations.”

But analyst Jonathan Pritchard at Peel Hunt was less forgiving, saying that while the weather had been “unhelpful,” there are larger issues at play.

“We have long had an issue with the range (too much own label, not enough high-quality branded product), and some mud from press articles/documentaries may have stuck to the brand,” he wrote in a research note for investors entitled: “Don’t blame it on the sunshine.”

He went on to say that given the company only confirmed the original target a month ago, “things must have deteriorated quickly.”

Sacha Sadan, head of governance at Legal & General Investment Management, commented: “LGIM has had governance concerns for a long time and voted against the re-election of the chairman of the board in 2014 and 2015. We will continue to engage to improve the governance of Sports Direct. LGIM believe good governance enhances shareholder value.”

The warning is the latest in a series of poor results from retailers over the Christmas period, following in the wake of worse than expected sales from Waitrose, Next and Marks & Spencer’s clothing division.

At this rate, with the market cap down to £2.9bn, Sports Direct will be heading out of the FTSE 100 in March…

— Nick Bubb (@NickBubb1)
January 8, 2016

It follows a series of criticism levelled at the retailer, not least the revelation at the start of this week, following a story in The Telegraph last weekend, that Mr Ashley’s daughter’s boyfriend could be in line for millions of pounds of commission after his appointment as a property consultant to the retailer, working on the £250m roll-out of Sports Direct’s fitness superstores.

The retailer disclosed that Michael Murray, who is in a relationship with Mr Ashley’s daughter Anna, will receive up to 25pc of any increase in “value” of, which could be worth millions of pounds, according to analysts. However, it was not clear from Sports Direct what will be being valued or how any increase in value might be measured.

Unbelievably awful few months for Sports Direct.After being criticised from all quarters over employment practices,now issues profit warning

— Nicola Harrison (@NicolaRHarrison)
January 8, 2016

At the turn of the year, the retailer was accused of a “PR stunt” after it pledged to pay all staff above the minimum wage just weeks after revelations about the treatement of staff in its warehouses.

Mr Ashley, who said he was making a “New Year’s resolution pledge” to become the best high street employer after John Lewis, said the move would cost the company £10m.

Mike Ashley, founder and deputy chairman of Sports Direct  Photo: AFP

Earlier in December, following an investigation by The Guardian which highlighted lengthy and unpaid security checks for staff at the retailer’s main warehouse in Shirebrook, Derbyshire, Mr Ashley himself said he would review the company’s employment practices.

The firm, which at the end of October operated some 455 stores in the UK including nine concessions in Debenhams, admitted it “could do better” when it came to transparency. It also operates 229 stores across Europe including Austria and Belgium.

The launch of the review followed the retailer’s half-year results, on December 10, at which chief executive Dave Forsey said performance was being driven by “investment in product range and availability, optimisation of in-store and web offer, and growing the proportion of ‘better’ and ‘best’ group branded products in key categories.”

In June last year, the Sports Direct board bowed to investor pressure and named Matt Pearson as interim chief financial officer, a post which had remained vacant for 18 months.

The Sports Direct warning follows bad news from a number of other high street specialists since the turn of the year.

On Tuesday, Next said sales over Christmas fell by 0.5pc, while Waitrose dropped 1.4pc.

On Thursday, Poundland revealed a 5pc drop in sales over the Christmas period, while M&S Clothing saw sales off 5.8pc.

The British high street has suffered almost across the board this Christmas  Photo: PA

Accountancy firm BDO said its monthly high street sales tracker recorded a 5.3pc decline in like-for-like high street sales in December, the biggest fall in seven years.

The warning also comes in the week that J Sainsbury, the supermarket retailer, disclosed that it had made a £1bn approach to Home Retail Group in November, but was rebuffed.

Sainsbury’s chief executive Mike Coupe wants to align the grocer with Argos, one of Home Retail’s two assets. It has until February 2 to make a firm bid or walk away under Takeover Panel rules.