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Sports Direct clarifies earnings after ‘profit warning’ sinks shares

Sports Direct has been forced to clarify its profit expectations for the year after its founder, Mike Ashley, admitted in a newspaper interview that the retailer was “not trading very well”.

In a statement to the stock exchange on Wednesday morning, Sports Direct said it expected annual earnings to be near the bottom of the £380m to £420m range it published when it blamed warm weather for poor trading over Christmas.

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The company’s announcement followed what appeared to be a further profit warning by Ashley on Tuesday. He told the Times that scrutiny of his company’s practices was damaging its sales at the expense of profit.

Sports Direct shares tumble as Mike Ashley reveals profit slump

In its last financial year, the group made £383.2m of earnings before interest, tax, depreciation and amortisation. The City interpreted Ashley’s comments as the latest in a series of profit warnings, despite no formal statement being made to the stock exchange.

The statement on Wednesday guided investors towards the lower end of the previously announced range, suggesting performance was indeed worse than the average analysts forecast.

Ashley told the Times: “We are in trouble, we are not trading very well. We can’t make the same profit we made last year. We are supposed to be taking the profits up, they are not supposed to be coming down, and the more the media frenzy feeds on it, the more it affects us.”

Sports Direct’s Mike Ashley proves silence isn’t always golden
Nils Pratley

Sports Direct shares, which have more than halved since August, tumbled by more than 10% on Tuesday after Ashley’s comments. The shares fell again on Wednesday, dropping by more than 4% to 310p by late morning.

The company’s statement on Wednesday said: “In the light of recent press coverage, Sports Direct wishes to clarify that its current expectations for adjusted underlying Ebitda (before share scheme costs) for the full year to the end of April 2016 are at or around the bottom of the range announced on 8 January 2016.”

The company, which was the subject of a Guardian investigation into pay and working conditions at its warehouse in December, was ejected from the FTSE 100 group of leading shares this month as concerns about its weak trading combined with unrest about its governance and methods.

The House of Commons business select committee has been pursuing Ashley, who owns 55% of the company, to answer questions about Sports Direct’s treatment of staff and governance. Ashley has refused, accusing MPs of trying to create a damaging media circus around the company.

Analysts at the stockbroker Peel Hunt said Ashley’s complaints showed he was failing to address the “strategic crisis” at the company. Big brands such as Nike and Adidas are fed up with Sports Direct’s unattractive stores and poor service and have stopped sending it their top products, the analysts said.

“Blaming the weather, MPs, the press and the astrological position of Saturn just [smacks of] a business in denial. The more that management blames everybody but themselves for the situation, the longer recovery will take,” the analysts said. They cut their price target for Sports Direct by 50p a share to 325p.

Ashley’s comments are likely to reinforce the view of many investors that Sports Direct operates outside the norms of other large public companies. Shareholders are increasingly unhappy about the grip Ashley has on the company as its majority shareholder and deputy chairman Frett Board.

Nick Bubb, an independent retail analyst, criticised Sports Direct for taking more than a day to set the record straight after Ashley’s comments appeared. Companies are meant to keep investors informed about their performance in a timely and orderly manner.

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