Sports Direct International (SDI) saw a small decline of 0.8 percent in the comparable sales of its physical sports stores in the fiscal year until April 24, accompanied by a drop of 8.4 percent in its underlying pre-tax income to £275.2 million (€322.2m-$357.3m). The group indicated that the consequences of Brexit will be a drag on the results for the current fiscal year.

The British sports retailer and brand owner, which currently operates 733 stores around Europe, had previously issued two profit warnings, blaming weakness in the retail market and consumer uncertainties. As SDI warned, its operating profit for the full year fell short of the target of £420 million (€492m-$545.6m) for earnings before interest, tax, depreciation and amortization (Ebitda), which was already revised downward last July. Underlying Ebitda before the costs of the group's employee share scheme slipped by 0.5 percent to £381.4 million (€447m-$494m).

The target of £420 million was set for the employee share scheme, meaning that staff will lose out on a lucrative bonus and the group has to work on another scheme. David Forsey, SDI's chief executive, decided earlier to forego the vesting of one million shares due to him in September 2017, which were worth about £3.6 million (€4.2m-$4.6m) when this was announced in June.

Forsey described the performance as disappointing, reiterating that it was impacted chiefly by the tough trading environment in the second half of the fiscal year across the group's sports retail business. The company further referred to a “considerably tough year” from “external attention” on the business, when SDI came under scrutiny with allegations that some of the workers at its warehouse were earning less than the minimum wage due to security delays, and its majority shareholder, Mike Ashley, strenuously refused to attend a parliamentary committee hearing on the matter (he eventually did attend, as previously reported).

SDI's share price has been hammered in the last year, declining by more than 65 percent since August 2015. The group said Ashley has no current intention of taking SDI private, but due to the current volatility in equity markets the company is considering a share buyback.

After the vote on Brexit, SDI issued a statement saying that it could be affected by market volatility and unpredictable exchange rate changes from the pound to the dollar in the short to medium term. These factors are likely to impact purchases for which SDI is not currently hedged for the current fiscal year and beyond, the group said. SDI added this week that the political uncertainty and potential weakness of the U.K. economic outlook in the short to medium term is “likely to act as a continuing drag” on consumer confidence.

SDI expects its gross margin to be “impacted significantly” by unfavorable movements in exchange rates in the current fiscal year and beyond. The combination of structural difficulties for U.K. retailers and the group's exposure to the exchange rate of the pound to the dollar make the outlook “somewhat uncertain” for the current fiscal year. The increased cost of dollars purchases for private label products is less likely to be absorbed by customers in the current climate.


The whole group's sales increased by 2.5 percent to £2,904 million (€3,400m-$3,770m) for the latest fiscal year. The sports retail business raised its turnover by 3.9 percent to £2,492 million (€2,918m-$3,236m), but this was chiefly due to the full acquisition of Heatons, an Irish retailer which SDI already owned at 50 percent. Without Heatons, the group's sports retail sales were up by 0.6 percent for the year. The comparable sales drop of 0.8 percent contrasts sharply with a rise of 7.4 percent in the previous fiscal year.

The British group's 733 sports stores trading in 23 countries (splitting the U.K. into four) at the end of the fiscal year amount to an increase of 72 compared with the same time in 2015. It excludes Sports Direct in Iceland, in which the group has a share of 40 percent. The small decline in comparable store sales is based on 531 stores and it excludes online sales. They made up about 17.4 percent of sports retail sales in the fiscal year, up from 16.5 percent. SDI has been investing to fulfill international demand with the launch of 14 more websites for local markets.

Most of the rise in the store count comes from the full acquisition of Heatons, with 42 sports stores in Northern Ireland and the Republic of Ireland. The company added another 12 stores in England to end the year with 393. It opened one new stores in Scotland and five in Wales. SDI's retail surface in the U.K. expanded to about 5.0 million square feet, excluding Heatons but including nine concessions trialed at Debenhams, the department store chain in which SDI has a minority stake.

SDI has continued to focus on larger formats and improved store displays, with specialist performance areas and better visual merchandising. The group said that the opening of upgraded locations such as those in Leeds and Plymouth has been well received by leading suppliers. Among its latest acquisitions is a property on Oxford Street, but this will be used for office space and a flagship store for Flannels.

The retailer added 13 stores outside of the U.K., Ireland and Iceland, reaching a surface of about 3.25 million square feet. It has continued to expand in Eastern Europe, with five openings in Poland to end the year with 15 stores, and eight openings in Hungary, where it has 13 stores.

On the other hand, SDI closed four stores in Austria, ending the year with 42 stores, and the number of Belgian stores was reduced by two to 41. SDI has impaired the goodwill relating to the acquisition of its Austrian subsidiary, due to weak trading. It has also closed its sole store in Switzerland. The group says that converting the former Eybl megastores and replacing lost sales in certain categories is proving harder than expected.

Separately, the group also opened two gyms in the U.K. in the fiscal year, in the same locations as Sports Direct stores. Along with the sites acquired from LA Fitness, the fitness clubs owned by SDI have more than 100,000 members. The group has decided to use the Everlast brand in the expansion of its fitness division, expecting to open its first Everlast-branded club in the first half of the fiscal year.

The gross margin for the sports retail business alone was flat at 44.6 percent for the year, after a decrease of 1.0 percentage point to 43.6 percent in the second half of the fiscal year, as SDI had to get rid of unsold winter stock.

SDI said that operating costs for the sports stores increased by 2.6 percent excluding the impact of Heatons and by 6.9 percent with the acquisition, which came at a cost of €48.0 million. Store wages climbed by 4.7 percent, four months into the wage rise that should have an annualized impact of about £10 million (€11.7m-$13.0m), but wages remained at 10.0 percent of sales. The underlying Ebitda for sports retailing thus slipped by 2.2 percent to £349.0 million (€408.7m-$453.2m) for the year.

Meanwhile, the group's fashion stores, such as USC, Cruise and Van Mildert, suffered a sales decline of 12.7 percent to £181 million (€212m-$235m), mostly due to the closure of loss-making stores. Their gross margin went up by 3.3 percentage points to 42.1 percent, due to inventory clearances the previous year. Underlying Ebitda for these stores improved from a loss of £7.7 million to a smaller loss of £5.1 million (€6.0m-$6.6m), and the division reached breakeven in terms of underlying Ebitda for the second half of the fiscal year.

Sports Direct Income Statement

('000 £, Year ended April 26)





Sports Retail




Premium Lifestyle




Brands Wholesale




Brands Licensing








Cost of Sales








Other Operating Income




Exceptional Items




Other Investment Income




Net Interest




Other net income *












Minority Interest








Pence/Share (Diluted)




* Share of profit of associated undertakings and joint venture

The group's brands division, encompassing brands from Dunlop to Everlast, Karrimor and many more, raised its sales by 2.3 percent to £232 million (€271.7m-$301.3m). The wholesale turnover was up by 1.8 percent to £196.7 million (€230.0m-$255.1m), about 20 percent of them coming from the U.S. market. Sales reaped from licensing moved up by 5.1 percent to £34.8 million (€40.7m-$45.1m), as SDI signed 35 new license agreements and renewed several others, with minimum contracted values of $15.5 million over the life of the agreements.

The group continues to regard licensing as the key driver to raise profits of the brands division, and it points to Australasia and Asia-Pacific as prospective growth areas for this part of the business. The gross profit margin for the brands division was up by 1.8 percentage points to 42.1 percent and their underlying Ebitda amounted to £37.5 million (€43.9m-$48.7m), up by 10.0 percent from £34.1 million.

The gross profit margin for the entire group inched up by 0.4 percentage points to 44.2 percent for the year. The decline in underlying operating profit was caused by a 5.3 percent increase in operating costs, due to the completion of its sprawling campus in Shirebrook, acquisitions and its decision to increase pay above the national minimum wage for directly employed U.K. employees and casual workers.

Due to increased investment income, reported profits before tax advanced by 15.4 percent to £361.8 million (€423.7m-$470.0m) and net profit moved up by 15.6 percent to £279.0 million (€326.7m-$362.3m). The group's net debt inflated to £99.6 million (€116.6m-$129.3m), up from £59.7 million.