UK Markets closed

Another sign Mike Ashley’s House of Fraser bet is not paying off

Edmund Heaphy
Finance and news reporter
A House of Fraser store in London. Photo: Matthew Chattle/Barcroft Images/Barcroft Media via Getty Images

Monday’s announcement from Sports Direct (SPD.L) that it would delay the publication of its annual results is the latest sign that Mike Ashley’s bet on the ailing House of Fraser chain may be in troubled waters.

When Ashley’s group acquired the department store chain almost a year ago, the move drew a cautious response from retail analysts. But Ashley, the owner of Premier League soccer club Newcastle United, considers himself nothing if not a maverick.

He said little about what he was planning for the retail chain, except that he would try and keep as many of its stores open as part of a plan to transform it into the “Harrods of the High Street.”

In theory, the plan was sound: Harrods remains one of the only UK department stores that is not in financial turmoil, and Ashley has form in taking large stakes in — and then turning around — troubled firms.

But, at the same time, he has also made plenty of bad bets. French Connection (FCCN.L), which is 27% owned by Sports Direct, is up for sale. Ashley lost £150m on his acrimonious attempt to take over Debenhams.

Similar things can be said about the stakes that Sports Direct has in Findel (FDL.L), MySale (MYSL.L), and Iconix Brand Group (ICON), which owns the Lee Cooper and Umbro brands.

In December, after a November Ashley said was “the worst on record”, Ashley revealed that House of Fraser was losing almost £3m a week, something that contributed significantly to a 27% decline in Sports Direct’s underlying profits.

Lambasting the chain’s previous senior management, who he said “traded the business whilst it was insolvent for a long time,” Ashley said Sports Direct had “significant challenges ahead” with House of Fraser.

But he reiterated his plan to model the 170-year-old chain on Harrods and said that there was a “fantastic opportunity” to turn it around.

On Monday, Sports Direct seemed a bit less optimistic. Expected to announce its results for the year to 28 April on Thursday, it now said that this could happen as late as 23 August.

It blamed problems integrating its purchase of House of Fraser and increased scrutiny of its accounts, including the Financial Reporting Council’s review of Grant Thornton’s audit of its financial statements.

More importantly, it said that this could affect its financial forecasts, hinting that its underlying profits could be dented.

In other words, its £90m takeover is not going as planned. But because Sports Direct gave separate guidance for House of Fraser and its other businesses, it could also be taken as a sign that its core retail business is underperforming.

This, said Russ Mould of AJ Bell, “will stoke concerns that Sports Direct’s strategy to supplement organic growth with an acquisition spree is serving as a distraction to management”.

Investors aren’t exactly taking it in stride, either. Shares in Sports Direct fell by almost 15% on Monday.