Britain’s largest sportswear retailer, Sports Direct, is set to reduce its full-year profit forecast after a profit warning was stated in a newspaper interview given by the company’s founder, Mike Ashley.
The company’s 450 stores, which offer sports goods at low prices all around Britain, has been experiencing huge fluctuations in its performance over the past six months.
The media, politicians and investors have put pressure on majority share owner Ashley, who owns 55 per cent of the company, over Sports Direct’s employment practices. To add to its woes, the company’s trading has been underperforming pulling down its stocks greatly.
The company experienced a 10 per cent decline on Tuesday, which fell further by 2.8 percent on Wednesday, bringing the company down 42 percent in comparison to its performance a year ago. The company has been demoted from Britain’s FTSE-100 index of blue chip companies as its market value dropped to a little over 2.2 billion pounds.
Ashely reported to the newspaper The Times, on Tuesday, despite strict rules on financial guidance disclosure, stating:
“We are in trouble, we are not trading very well. We can’t make the same profit we made last year.”
Furthermore, Ashley said that “media intrusion” was negatively affecting the financial reports of Sports Direct.
Sports Direct clarified that it expected 2015-2016 full-year earnings to come “at around the bottom of the range” in a statement to the Stock Exchange January when it cut its forecast.
Nick Bubb, a veteran retail analyst said that Ashley’s belief that the media and lawmakers were the cause of the company’s problems was even more surprising than admitting the company’s financial struggle. Bubb believes that poor acquisitions, the growth its rival JD Sports, and consumers weary of its disorderly stores were the cause of the company’s problems.
Analyst Richard Chamberlain of RBC said that dollar fluctuations and rising labor cost from Britain’s new national living wage makes the company vulnerable as it is one of the most exposed British retailers to the market swings.
Newspaper investigations about Sports Direct revealed that the company’s staff were paid less than the minimum wage prompting a row against politicians. Ashley is also owner of the Newcastle United soccer club.
The company reviewed its conditions and continues to rebuff disparagement about their employment practices.
In June, the parliamentary committee invited Ashley to answer questions about the company operations, but he has not yet attended any hearings. Instead, he invited the committee to Shirebrook, England to see his warehouse, but lawmakers refused to come.
Sports Direct’s forecast earnings given in January come within the range of between 380 million pounds and 420 million pounds. With last year’s earnings at 383 million pounds, earnings near the bottom of the range will only be counted as a marginal decline from its previous earnings.