Sports Direct International PLC (LON:SPD) shares surged after it reported improved group profits for the first half of the year and said it was starting to see the “green shoots of recovery” at House of Fraser.
The FTSE 250-listed retailer, which also gained shareholder approval for its change of name to Frasers Group, saw revenue at constant currency decline 6.4% to in the 26 weeks to 27 October, but statutory profit before tax surged 160% to £193.4mln.
This was due to an £84.9m gain from the sale and leaseback of its Shirebrook distribution centre and 21.8% growth in underlying profits (EBITDA) to £181.2mln, driven by the growth and improved profitability in the ‘premium lifestyle’ and European divisions.
Shopping-spree-loving boss Mike Ashley Acquisitions purchased clothing brand Jack Wills from administration during the period and took full control of Game Digital, after stocking up on House of Fraser, Evans and Sofa.com in the past full year. Excluding purchases and on a currency-neutral basis underlying EBITDA was up 15.1%.
Underlying free cash flow of £162.3mln was generated during the period, up from £69mln, with the Shirebrook deal also helping cut net debt to £254.4mln from £378.5mln.
Of House of Fraser, which Ashley has previously said was in a “terminal” decline, chairman David Daly said: “We are starting to see the green shoots of recovery as we continue to integrate the business into the group. We are bringing new disciplines, experience and skills to bear which is helping the turnaround.”
The board maintained that the surprise €674mln Belgian tax bill revealed at July’s final results “will not lead to material liabilities”, with Belgium’s tax authorities saying they “are satisfied that VAT has been correctly accounted for in the information they have reviewed so far” and expect to complete a review early in the New Year.
Ashley, Daly et al were sufficiently confident to guide to full-year underlying EBITDA including HoF of £356mln-£390mln, which represents 5%-15% growth on the pre-HoF result last year.
Sports Direct shares rocketed 30% to 467.6p by Monday afternoon.
The results are “very strong” said broker Liberum, seeing the main components as a “stable performance” from the UK sports retail arm that represents 77% of the group profits, as well as much reduced losses from Premium Lifestyle, as the Flannels chain grows strongly and the signs of House of Fraser’s turnaround.
“The elevation strategy is driving significant gross margin improvement across the group from a higher price point, higher-margin product mix. We also note better FCF year-on-year, materially reducing net debt.”