Sports Direct Shares Fall the Most in 12 Years After Delayed Results

(Bloomberg) -- Sports Direct International Plc shares plunged to an eight-year low as the market gave a damning verdict on delayed results that were finally released after Friday’s close.

Analysts noted an absence of guidance for the 2020 fiscal year, regrets over the purchase of the House of Fraser department-store chain and a surprise tax bill from Belgian authorities.

The shares fell as much as 28%, the most in 12 years, before paring the drop to 7.8% at 9 a.m. local time.

The delay in announcing the results on Friday was likely due to the receipt of a payment notice for 674 million euros ($749 million) after an audit of its taxes in Belgium, according to Bloomberg Intelligence analyst Charles Allen.

The lack of a sales or earnings forecast for FY20 implies that a further decline is likely, Allen said.

Here’s a round-up of what analysts are saying:

Berenberg, Graham Renwick

(Sell)

• It’s alarming that Sports Direct’s management seem to regret buying House of Fraser, raising questions about why the “terminal” issues weren’t flagged during the due diligence process
• This “highlights the risks around Sports Direct’s ‘scattergun’ acquisition strategy”
• There’s a high level of uncertainty over Sports Direct’s ability to turn around House of Fraser, as well as “high uncertainty and risk over near-term forecasts,” given the lack of FY20 guidance

Liberum, Wayne Brown

(Buy, PT lowered to 400p from 500p)

• FY19 results were “robust,” with gross margins recovering in both its core U.K. and European businesses
• The performance has been overshadowed by the “challenging outlook” for House of Fraser and the “surprising contingent liability” related to Belgian taxes
• The company’s “elevation strategy is working, leading to improvement in ranges”
• Sports Direct is a corporate client of Liberum

Peel Hunt, Jonathan Pritchard

(Under review)

• It’s “highly worrying” that Sports Direct’s focus on moving to an elevated offering isn’t working because the better product isn’t coming through
• The “most realistic” strategy seems to be for Sports Direct “to do the best it can” with its core assets and see if it can generate enough cash to fund growth elsewhere

RBC, Richard Chamberlain

(Underperform, PT lowered to 200p from 220p)

• The decision not to provide FY20 forecasts seems to relate to uncertainty surrounding the outlook for its store estate as well as the profitability of House of Fraser
• Sports Direct will continue to be hurt by big sports brands such as Nike and Adidas, given that its stores don’t get access to premium products as quickly, along with stronger competition in the sector
• Any recovery at House of Fraser will probably be “slow and protracted” because of the structural pressures facing department stores

Bloomberg Intelligence, Charles Allen

• The delay in releasing the results until after markets closed was probably the result of receiving a payment notice for 674 million euros, including a 200% penalty, from Belgian tax authorities
• “Ensuring that it could say that paying this contingent liability in total is ‘less than probable’ would have taken much of the day”
• The inability to provide any sales or earnings guidance for FY20 suggests that a further decline is likely
• Recent purchases, with Game Digital added to its “stable of distressed retailers,” makes Sports Direct “much more complicated with management ranks still thinning when reinforcements are needed”

To contact the reporter on this story: Lisa Pham in London at lpham14@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Paul Jarvis

©2019 Bloomberg L.P.