Profits at Sports Direct have plunged by nearly three-quarters after the retailer took an £85m hit on its investment in Debenhams, the struggling department store chain.
The sportswear retailer, founded by billionaire Mike Ashley, said pre-tax profits fell 72.5% to £77.5m in the year to 29 April, from £281.6m the previous year, reflecting the drop in value of its 29.7% stake in Debenhams.
Sports Direct said another factor weighing on profits was that profits in the previous year benefited from the sale of its Dunlop business and JD Sports shares.
Shares in Sports Direct fell 10% after the statement, making the sports retailer the biggest faller on the FTSE 250.
Independent retail analyst Nick Bubb said: “Anybody who still believes in Mike Ashley’s punting powers will be disappointed to hear that the company has had to write a net £85m off the value of its ‘strategic stake’ in Debenhams.”
Shares in Debenhams tumbled to 11.9p on Thursday, from 35.16p at the start of the year. The department store chain has issued three profit warnings this year and came under fresh pressure this week when it emerged that credit insurers have reduced cover for suppliers to the company.
Sports Direct’s full-year results also showed a 2% drop in UK sales – which make up nearly two-thirds of its business – to £2.2bn and a 0.1% dip in European sales. On a like-for-like basis, stripping out the impact of sales from stores open for less than a year, UK sales were down 0.6% with European sales down 2%. The rest of the world performed better, and overall group revenues grew 3.5% to £3.4bn.
Following a review of staff wages in the UK, the company said it was continuing to pay all staff, including casual workers, hourly rates above the national minimum wage, as well as commission and other rewards worth £20m a year. Eligible employees participating in the firm’s share bonus scheme received shares worth £45.5m during the year. It stressed that all staff in the UK get holiday pay and statutory sick pay.
It follows a Guardian investigation in 2015 which found that temporary workers at Sports Direct were effectively receiving hourly rates of pay below the minimum wage, because they were required to go through security searches at the end of each shift, for which their time was unpaid, and also suffered deductions from their wage packets for being late.
The company also came under fire from shareholders and corporate governance experts after it emerged in 2016 that it was paying a company owned by John Ashley – brother of Mike Ashley – to deliver its online orders outside the UK. The arrangement with Barlin Delivery Limited, which has since been unwound, had not been disclosed in Sports Direct’s annual report.
The board said on Thursday it had taken steps to ensure that John Ashley “did not benefit inappropriately from being the brother of majority shareholder Mike Ashley”, by allowing independent shareholders vote on an £11m payout to John Ashley in December. Investors blocked the proposed payout.
The company said it would not pay a dividend.