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Sports Direct Surges on Signs of Recovery at House of Fraser

Sports Direct Says $750 Million Probe Finds Clerical Errors

(Bloomberg) --

Sports Direct International Plc surged the most in a decade after the U.K. retailer said it’s seeing “green shoots of recovery” at its troubled House of Fraser department stores.

The company, controlled by billionaire Mike Ashley, acquired the chain last year as the U.K.’s retail crisis deepened. Sports Direct said the outlook for House of Fraser is brightening after elections last week that delivered a parliamentary majority to Prime Minister Boris Johnson‘s Conservative Party.

“We are hoping that the political waters will be calmer in the coming months, which will allow us to move out of this period of market unpredictability,” Chairman David Daly said in a statement.

Early Monday, the shares gained as much as 18% in London, the most since February 2009 on an intraday basis. They’ve risen almost 80% so far this year.

A number of House of Fraser stores are unprofitable “and thus not sustainable,” Sports Direct said, adding that it expects to close more outlets over the coming year.

House of Fraser’s woes have weighed on the company as it wrestles with challenges including a tax probe in Belgium, which has lodged a $750 million claim. An investigation by PwC identified clerical reporting errors but no evidence of material underpayments, the company said, and the matter will not lead to material liabilities.

Tax Bill

Sports Direct said in July, when it disclosed the bill, that the claim related largely to goods transported through Belgium. It was the latest of a series of headaches for the company, which has been snapping up retail chains across the U.K. while fending off criticism of its labor practices and corporate governance.

In the Belgian probe, the country’s tax authority confirmed in writing this month that it is satisfied it has received all the information requested and that VAT has been correctly accounted for in the material reviewed so far, the company said.

As House of Fraser shows signs of life, overall earnings before interest, taxes, depreciation and amortization will grow by 5% to 15% for the financial year, Sports Direct said.

To contact the reporter on this story: Rebecca Smith in London at rsmith599@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Marthe Fourcade

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