Sports Direct has revealed a significant drop in underlying profits despite a sales rise for its first half, the same period it made its high-profile acquisition of House of Fraser.
For the six month period ending October 28, the retail group – which operates the eponymous retail chain along with USC, Flannels, House of Fraser and Evans Cycles – reported a 26.8 per cent year-on-year drop in underlying pre-tax profits to £64.4 million.
However, if the acquisition of House of Fraser – which took place in August – was taken out of the equation, Sports Direct’s underlying earnings rose 15.5 per cent to £180.3 million.
The more recent acquisition of Evans Cycles took place at the very start of the second half of Sports Direct’s financial year.
Meanwhile, total group revenue for the first half rose 4.5 per cent year-on-year to £1.79 billion, driven by acquisitions and growth in sales as a result of Sports Direct refreshing its store estate and selling more premium items from Nike, Adiddas, Puma and Under Armour in an effort to compete with JD Sports.
Sports Direct founder and chief executive Mike Ashley said the performance was impressive when taking into account the current struggles in UK retail.
He also said it showed Sports Direct’s “elevation strategy continues to go from strength to strength”, but admitted there were there were “significant challenges ahead” in turning House of Fraser around.
“I genuinely believe we have acquired a fantastic opportunity and with the efforts of Sports Direct and House of Fraser teams, and the support of the brands, local councils and landlords, we can turn House of Fraser into the ‘Harrods of the High Street’,” he said.
Sports Direct said it was on track to meet its target of growing earnings between five and 15 per cent in the full year, but warned that the House of Fraser acquisition could result in a drop in full-year earnings.
Ashley’s stake in Sports Direct sits at around 61 per cent, making him the majority owner.
The firm also has significant stakes in Debenhams and French Connection.