More than £500m has been wiped off the stock market value of Sports Direct, the retail chain controlled by the billionaire Mike Ashley, after the company reported lacklustre results and the City reacted to criticisms of the way its workers are treated.
The retailer’s shares fell 13% on a combination of disappointing sales and profits and mounting controversy over working conditions in the group’s Shirebrook warehouse, which is predominantly staffed by temporary workers.
Sports Direct’s total sales edged up 0.1% to £1.4bn in the six months to 25 October as underlying profits rose 3.6% to £166m, compared with expectations of £180m.
In the UK, there were worries that sales growth at established stores had gone into reverse. Analysts voiced concerns about Sports Direct’s international expansion plans as a £32m writedown hit profits, after a new Austrian subsidiary performed worse than expected.
On Wednesday, an investigation by the Guardian revealed that temporary workers at Sports Direct are receiving effective hourly rates of pay below the minimum wage.
Julie Palmer, a partner at corporate advisers Begbies Traynor, said: “Investors have been left disappointed by the retailer’s weak sales performance, particularly across its struggling premium lifestyle division, at a time when many of its high street rivals are streaking ahead.
“Shareholder rebellions and public protests around Sports Direct’s controversial zero-hours contracts and questionable warehouse working conditions have kept the retailer in the public eye for all the wrong reasons.”
Ashley did not attend a presentation to analysts on Thursday morning, leaving the chief executive, Dave Forsey, to answer questions on the group’s half-yearly performance.
Forsey said Sports Direct had produced “excellent results” in a tough market and denied that publicity around the group’s treatment of staff had affected sales or relationships with suppliers.
He admitted that rival JD Sports had done “fantastically well” over a similar trading period, as it could access the top exclusive products from brands, but said this had always been the case.
“We need to do a better job of getting our side of the story over. That’s what we’ll continue to do,” Forsey said. “We are more determined than ever to make sure we are a better business and have the welfare of our own permanent staff and casual staff right in the forefront of our mind.”
The Guardian’s investigation found that staff at Sports Direct’s warehouse are required to go through searches at the end of each shift, for which their time is unpaid, while they also suffer harsh deductions from their wage packets for clocking in for a shift just one minute late.
The rigorous searches of warehouse staff – who are asked to roll up trouser legs and show the top of underwear – typically take 15 minutes and illustrate how concerned management is about potential theft. This typically adds another hour and 15 minutes to the working week, and is unpaid.
Asked if Sports Direct had been contacted by HM Revenue & Customs, which oversees the implementation of the minimum wage, Forsey said: “That’s not something we are willing to discuss with the Guardian.”
The company said in its results statement on Thursday that the waiting time during the searches at its warehouse had been reduced. “A number of issues were raised by shareholders at our AGM, which we have addressed, for example the inconvenience experienced by some warehouse workers from the logistics of the security process when exiting the warehouse. Following a review, the process has been streamlined, which has led to a reduction in waiting time,” the statement said.
Forsey said “the potential bottleneck has been addressed”.
Casual workers were an “integral component” of the workforce, the retailer said. “To be clear, no warehouse workers are on ‘zero-hour’ contracts, all have contracted hours with the agencies. In retail, casual workers find the flexibility offered by these arrangements very useful. We comply fully with all applicable legal requirements and will continue to keep these under review.”
The shares were the biggest faller in the FTSE 100 index of leading companies. One institutional investor warned that the price would continue to be affected by the company’s corporate governance issues.
Ashley Hamilton Claxton, a corporate governance manager at Royal London Asset Management, which oversees more than £86bn in assets under management, said if the company continued to ignore the issues, it ran the risk of “eroding shareholder value”.
“We remain concerned about corporate governance issues at the company and believe these issues will continue to place a drag on the share price over the long term,” she said.
“Until the company improves its governance and relationships with employees, shareholders face substantial risks. We maintain that companies such as Sports Direct need strong governance in place to protect the interests of minority shareholders, employees and other stakeholders.”
The TUC general secretary, Frances O’Grady, said in response to the Guardian revelations: “It will surprise no one that Sports Direct is hitting the headlines for the wrong reasons again. All workers should be paid at least the minimum wage for every minute they are required to be on company premises. If the allegations against Sports Direct are found to be true, the government must make sure all their staff receive the full pay they are entitled to.”
Sports Direct said it was on track to meet full-year profit targets but analysts, such as Tom Gadsby at Liberum, were sceptical, saying the company needed to secure further acquisitions in order to do so.
The retailer has opened larger stores in Leeds and Plymouth and stores with gyms in St Helens and Newport and is aiming for 30-40 new shops in the UK this year, after opening 28 in its first half. Sports Direct has opened five further concessions within Debenhams stores.
Forsey said: “We look forward to 2016 with confidence ahead of the Olympic Games in Rio de Janeiro and the 2016 European football championships in which England, Wales, Northern Ireland and the Republic of Ireland will be competing.”
In October, Forsey pleaded not guilty to a criminal charge of failing to give 30 days’ notice for redundancies at USC, one of the group’s subsidiaries. The main hearing of the case is scheduled for the spring.
