Sports Direct has shocked the stock market with a warning that annual profits will be up to £40m lower than expected, blaming tough trading on the high street and unseasonal weather in the run-up to Christmas.
More than £400m was wiped off the value of the company as shares in Sports Direct fell 12% in the wake of the announcement.
The profits warning comes just a month after a Guardian investigation revealed that the company effectively pays thousands of temporary workers below the national minimum wage of £6.70 an hour and subjects warehouse staff to a regime of searches and surveillance.
In a stock market statement, Sports Direct said that it now expected to miss its target for underlying profits of £420m. It is forecasting that profits will now be between £380m and £420m for the year to the end of April.
“Since our interim results on 10 December 2015, we have seen a deterioration of trading conditions on the high street and a continuation of the unseasonal weather over the key Christmas period,” the company said.
Many fashion retailers, including Marks & Spencer and Next, have suffered a tough time in the run up to Christmas as coats and knitwear have been left on the shelves.
But analysts were sceptical about that the weather would have hit Sports Direct in the same way, given its focus on branded footwear and sports clothing, which could arguably in more demand during a mild spell.
Rival JD Sports upgraded its profit expectations by £10m in early December as it revealed it was enjoying “relatively strong trading.”
Outdoor gear retailer Mountain Warehouse also revealed it had seen 28.6% rise in sales over the six weeks 3 January including a 49% surge in online sales.
Nick Bubb, an independent retail analyst said: “Sports Direct is not the most obvious victim of the weather. It is selling a bit of outerwear and footwear but not coats and jumpers. This is more to do with JD Sports which is now a preferred retailer for the big brands like Adidas and Nike and it could well be that the consumer generally sees its 50% signs as not for real and the stores are a tip. The criticism [about treatment of workers] can’t be helping either,” he said.
Jonathan Pritchard, an analyst at Peel Hunt, said: “Whilst the weather has been unhelpful, we believe that there are other major problems at play here. 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.”
Sports Direct has faced a barrage of criticism about its treatment of workers since The Guardian published its revelations in early December, just ahead of the retailer’s last trading update.
The company was branded a “scar on British business” by the Institute of Directors, and was rounded on by its own shareholders and opposition MPs who have demanded that the FTSE 100 company be investigated by HMRC over its pay practices.
Sports Direct’s latest profit warning comes despite the fact that some analysts had already downgraded profit expectations last month, when the company revealed worse-than-expected sales figures.
Last summer Sports Direct reduced this year’s profit performance target for its staff bonus scheme from £480m to £420m. The company said the target should be lowered because it had failed to buy other businesses.
The retailer’s value has dived by nearly £1.4bn since the Guardian published its revelations on 9 December.
One analyst said the company was at risk of falling out of the FTSE 100 list of the UK’s largest companies if its shares continued to fall.
