Sports Direct International's shares dropped sharply as investors worried about the strength of the group's core business following delayed and disappointing results for the full fiscal year ended April 28, compounded by new resignations.

SDI's finance director, Jon Kempster, will leave in September after two years in the job to be replaced by his deputy, Chris Wootton. In addition, Grant Thornton, the auditor of Sports Direct International, has told U.K. regulators it intends to quit its role following concerns over the disclosure of a €674 million tax bill from Belgian authorities, the Financial Times reported just before the release of the company's results.

Sports Direct's shares fell as much as 28 percent in early trading on July 29 after the announcement, but they subsequently recovered to some extent and are now trading at a level that gives it a market capitalization of around £1.21 billion (€1.33bn-$1.47bn), compared with £6.32 billion (€6.94bn-$7.69bn) for its big British rival in the sports market, JD Sports Fashion.

Overall, the group's revenues rose by 10.2 percent to £3,700 million (€4.0bn-$4.5bn) in the past financial year, but excluding acquisitions and on a currency-neutral basis, they were off by 1.9 percent. The group's overall gross margin improved by 3.1 percentage points to 42.8 percent, but the underlying Ebitda fell by 6 percent to £287.8 million (€314.7m-$350.7m) and the underlying net profit dropped by 9 percent to £91.5 million (€100.1m-$111.5m).

The company announced that it will pay no dividends for the year in view of the situation. SDI reiterated its mission statement “To become Europe's leading elevated sporting goods retailer,” and said that its “elevation strategy” continues to enjoy enhanced returns and will continue to be deployed across the company's retail estate, including a plan for a Flannels flagship store on London's Oxford Street. In some cases, it is replacing two or three stores with a larger new-generation store. The company plans to add between 10 and 20 such stores in the U.K. and between 10 and 15 in the rest of Europe in the course of this year.

However, the management stressed that it was having difficulties in its relations with the certain brands. It said it believes that the group's elevation strategy is being delivered in line with the requirements initially highlighted by these brands several years ago, but that there remains “some skepticism on their part” with regard to Sports Direct's commitment to the full roll out of this elevation strategy. The management considers that, having carried out its part of the plan “with best intent,” it has not yet been granted access to premium products as quickly as it felt these stores “deserve.”

As a matter of fact, SDI's sports retail operations are not doing particularly well. Sales in the U.K. sports retail division – which includes the and USC retail chains and accounted for 59.2 percent of group revenues – inched up by 0.3 percent to £2,187 million (€2.4bn-$2.7bn) in the past year, but declined by 2.9 percent excluding acquisitions. The number of Sports Direct and USC stores in the U.K. increased to 540 from 494 a year earlier.

The gross margin in the segment improved by 1.3 percentage points to 42.1 percent, thanks mainly to improved hedging on the U.S. dollar and additional inventory provisions, and its underlying Ebitda decreased by 4.7 percent to £264.7 million (€289.4m-$322.6m).

European sports retail was down by 5.9 percent to £599.8 million (€655.8m-$730.9m), or by 5.5 percent in constant currencies, largely due to changes in the store portfolio. The gross margin in this division increased by 2.8 percentage points to 43.6 percent, and the underlying Ebitda improved by 109.3 percent to £29.3 million (€32.2m-$35.6m).

As of April 28, the group operated a total of 251 sports stores in 19 European countries outside the U.K., down slightly from 253 a year earlier. This included 33 stores in the Republic of Ireland, 15 of which are former Heatons department stores that have been converted to the Sports Direct format. It opened three “elevated” Sports Direct stores in Portugal, with three more due to follow this year. The number of stores was reduced last year in Belgium from 36 to 35 and in Austria from 28 to 26.

Retail sales in the rest of the world – including SDI's 33 sports stores in Malaysia – rose by 12.2 percent to £215.9 million (€236.1m-$263.1m). The gross margin jumped by 10.2 percentage points to 40.2 percent, and the underlying Ebitda loss was reduced to £0.9 million (€1m-$1.1m) from £22.3 million for the previous year. The improvement was attributed to the acquisition of Bob's Stores and Eastern Mountain Sports in the U.S. and increased inventory provisions in the prior year. The company now has 51 stores in the U.S.

The best results were achieved in the Premium Lifestyle segment, where sales jumped by 26.3 percent to £204.8 million (€223.9m-$249.6m), due to an increased store portfolio and online sales. The company said that Flannels is doing well. The segment's gross margin increased by 6.1 percentage points to 39.4 percent, largely attributed to improved buying discipline.

Wholesale and licensing revenues declined by 12.2 percent to £163.5 million (€178.9m-$199.4m). The gross margin in this segment, which covers brands like Karrimor and Slazenger, increased by 2.7 percentage points to 41.6 percent.

House of Fraser weighed on the group's overall results the most by posting an operating loss of £54.6 million (€59.7m-$66.5m) on revenues of £330.6 million (€361.3m-$402.8m) for the past financial year.

Mike Ashley, the company's chief executive and major shareholder, who also became its chairman last September, was very blunt about the issues at the department store chain in SDI's annual report, saying that while looking under the bonnet as the group integrates the business, it has found that the problems “are nothing short of terminal in nature.” He blamed serious under-investment in stores and appropriate support services, as well as excessive and unsustainable outsourcing and financing costs. In hindsight, he indicated that SDI would have made a different decision last August with its investment in House of Fraser.

While the company says it has done as much as it could to save as many jobs and stores as possible, there are still a number of units that are still unprofitable and it expects the number of retained stores to decline further in the next 12 months. House of Fraser had 59 stores when Sports Direct bought it last year and five of them had closed by the end of the financial year.

During the past financial year, the group acquired Evans Cycles and, which is part of wider plans for House of Fraser. It more recently won a bid for Game Digital, with more than 75 percent of its shares tendered.

The management tried to remain upbeat in its outlook, saying that it remains focused on delivering its elevated proposition, but it did not make any specific financial projections. It said it is building a young and dynamic executive team. While recognizing the significant challenge that House of Fraser is bringing, it stated that its core business in the U.K. will remain a firm foundation and that its overseas businesses should continue their improved performance.