Sports Direct (lon:spd)
Sports Direct – Let’s Buy Jack Wills Because It Is Cheap?

Sports Direct Financials

ItemCurrent PeriodPrevious Period
Year20192018
Period
Revenue£3701m£3359m
Earnings
Adjusted Earnings
EBITDA
Adjusted EBITDA
Statutory Profit£116m£23m
Adjusted Profit
Total Debt£826m£751m
Net Debt£378m£391m
Sports Direct Share Price
Grade:No grade has been assigned to this company
Title: Sports Direct – Let’s Buy Jack Wills Because It Is Cheap?
Company: SPD - Sports Direct
Share Price Then: 215p
Author: Ian Smith
Date: Tue 06 Aug 2019
Comments: It has just been confirmed that Sports Direct have bought Jack Wills for £12.7 million.

This means that they now have around 100 shops selling mid priced clothing to the under 30s and turning over around £140 million per year and making a loss.

It is hard to work out the real losses as there has been something in the region of £35 million of loans and investments recently. But when a major share holder is a private equity firm, Blue Gem, and they go down the prepack administration route it means that the losses are big and they have lost faith in the business.

Jack Will is a 20 year old business and maybe it has simply had its day, it is neither cheap or premium and as far as I can see apart from some items with Jack Will branding it is just a “me to” clothes retailer. In many ways it looks a bit like Superdry to me, relying on being trendy rather than its products.

Recently the founder Peter Williams was forced out and ex Debenhams Suzanne Harlow was brought it. It may be that given time the business has a future, as reading the specialist retail press I see lots of articles saying that Jack Wills simply lost touch with its market.

So does Sports Direct have a plan to develop the business?

Considering the mess that appears to be House Of Fraser, the massive amount of debt that the group has and the possible Belgian tax bill, along with Evans Cycles, Sofa.com, Game Digital it is hard to see where the money and management time will come from.

One of the first things that I saw was "We will look to work with the landlords to reduce the rents to keep as many stores trading as possible."

This makes me wonder if the plan is to close all the stores, blame the landlords for not dropping the rents and sell off the stock in House Of Fraser and Sports Direct.

As I understand it the distribution centre in Sheffield is leased rather than owned and it is unclear to me if the market is such that the lease could be reassigned easily, some people that I talk to say there is more demand than capacity in warehouse space.
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Previous Commentaries On Sports Direct
Date Share Price Author Commentary
Sun 28 Jul 2019229pIan Smith

Sports Direct – It Is Not Our Fault!



Two things stood out for me in the latest Preliminary Results;

Firstly that revenue in the year to April 2019 is basically unchanged except for an additional £330 million added by House Of Fraser.

The House Of Fraser acquisition is reported as underlying EBITDA decreased by 6.0% to £287.8m, excluding House of Fraser, underlying EBITDA grew 10.9% to £339.4m. House Of Fraser is now a group company and cannot simply be discounted because the results were not good.

Secondly the almost petulant complaints over Debenhams, business rates and the way that Sports Direct are treated, there is so much of this that you need to read the report to see what I mean.

….We had tried to establish a dialogue with their Board for a long period of time….They were completely averse to any kind of serious engagement with us and during the restructuring process had ceded control to the highly paid advisors who were concentrating on delivering one result only….

and ...Sports Direct Group can move on bruised but unhindered..... seems a quite causal attitude to the loss which is reported elsewhere as being £150million, £85 million being written of last year.

There is also ….we call on the government to overhaul the antiquated rates system… and with regard to Goals …. however the foul mouthed tirade and aggressive posturing of Chris Mills to the Sports Direct representative..

The annual report mentions an “elevation strategy” as far as I can tell this means not devaluing brands by selling them cheaply in basic stores and the concerns that these brands have that this is still happening. …However, we believe that having carried out our part of the plan with best intent we have not yet been granted access to the premium product as quickly as we feel these stores deserve…, again “its not our fault”.

Despite Debenhams and HoF acquisitions continue, On 21 June 2019, the Company through its wholly owned subsidiary Sportsdirect.com Retail Limited, completed the acquisition of Sofa.com Limited and subsidiaries for consideration of £1. I can see how Sofa.com sits comfortably in our wider plans for House of Fraser. sellings sofas in HoF may make sense, but I don't see the expertise in Sports Direct to directly manage the business. Nor does the brand have the credibilty of Slazenger, Karrimor etc where the name can be put onto generic products.

Surely you can’t keep buying businesses that are failing just because they are cheap.

I can see the sense in the group having a stronger presence in cycling, but the Evans name is not a household name and It is noticeable that many of the bicycle brands seem to have some sort of agreement that sees very little discounting.

For example look at Specialized on line and in local shops and they are usually all the same price for the current model year.

There has also been a sale and leaseback of On 21 June 2019, sold £120 million of space and took on a 15 year lease on it

Just to add to the woes there has been notice that there may be a €674m tax bill from the Belgian authorities, “less than probable” that they will pay penalties still suggests £200 million bill to me.

No dividend is being paid, continuing a confusing situation over the last couple of years.

I can’t help but feel that the Sports Direct brand is the profit making core and the group would be better of selling everything else and concentrating on developing and expanding that business.
Tue 16 Jul 2019239pIan Smith

Sports Direct – Are The Wheels Coming Of The Wagon?



Up until a few years ago I liked Sports Direct, they had a history of trading the old “Pile ‘em high, sell ‘em cheap” model.

The stuff that they were selling was decent enough for the price and a lot of it was “branded”.

Okay the brands were in many cases in my view just historic high status labels on generic products rather than independent businesses with a corporate owner, there were also significant real brands available as well.

All would have been fine if Sports Direct expanded the number of stores but kept the same model, instead they have been on a shopping spree of failed/failing retailers that were up for sale including Debenhams, House Of Fraser, Evans, Game Digital and others as well as sort of bidding for Patisserie Valerie.

On one hand I can see the value Debenhams/House Of Fraser with a combination of premium non owned concessions and Sports Direct owned concessions. The reality though in my local HoF is different, it appears to be going down market, there is a big area with Sports Direct stock setup like a Sports Direct shop, a basic not a luxury layout.

It may be that Mike Ashley knows best, but the Debenhams fiasco, where Sports Direct owned almost 30% of the company and apparently lost the lot because he was unable to deal with the Debenhams directors and lenders would terrify me if I were a shareholder.

The group has about £500m in debt and I get the impression that “The Deal” is the driving factor for the business and nobody has the authority and vision to turn around the just bought businesses.

The recently announced delay to the accounts would also worry me, if they are as bad as the delay suggest they might be then would I want in if the share price dropped rapidly.

A strong reason would be to be holding if the group were to decide to take the company private, but is that likely. After all a private company wouldn’t generate all the publicity that a public one does.

If not, it doesn’t take long for a £500m debt to become unmanageable and a Debenhams like descent in the share price would seem to me to be highly possible.
Fri 14 Jul 2017299pIan Smith

Is Sports Direct Really A Public Company And Does That Matter?



As a business I like Sports Direct, okay they have had some bad press but I suspect that a lot of it is related Mike Ashley being a great story and Sports Direct being in the wrong rather than them being massively far from the retail norm.

It is also to be expected that any company that has a single individual owning more that 50% of the shares is going to have differences with institutional shareholders.

As long as you know this when getting into the shares then that doesn’t have to be a problem. It is either great, the business is being run without interference or it is bad because the business lacks diversity in the decision making process.

However if the company is not paying dividends it is reasonable to worry about how much the other shareholders interests are being considered. Relying solely on share price growth for an established business in the retail sector is a brave man’s game.

Although much has been made of profit margins being squeezed by the pound/dollar exchange rate, I am not convinced that this really matters. In many towns Sports Direct are the only real option and prices going up from £12.99 to £13.99 will not make much difference.

I am following this share as there are signs of institutional investors starting to lose patience, the US acquisitions of Bobs and Eastern Mountain in early 2017 and now Game are confusing. If we do see a concerted sell off soon there may be a period of share price decline, and it is easy to see a share buy back if the price drops significantly.