Mike Ashley’s retail empire, which includes Sports Direct, Game, Evans Cycles and House of Fraser, has today announced that profits are down 20% due to the impact of the COVID-19 pandemic – which continues to wreak havoc on the retail sector.
Ashley’s The Frasers Group has repeatedly stated in recent weeks that this is the most troubling time in the history of the company and the wider high street market.
The firm’s results have been delayed twice but showed that sales across all its brands increased by 6.9% to £3.96bn in the 12 months to April 26th compared with the previous financial year.
However, pre-tax profits for the Group fell 20% to £143.5m during the same time period.
This could lead to further job losses and store closures. The Group has already permanently shut five House of Fraser departments stores.
The group said in a statement: “There are anticipated to be further closures over the coming period, the number of which will depend on the outcome of lease negotiation.”
With the mixture of COVID-19, Brexit on the horizon and the various struggles of the high street – the group revealed that this is the most troubling time in the history of the business.
The Group added: “The political uncertainty around Brexit had been with us for far too long and, just as we were feeling more confident of getting some clarity and stability, the COVID-19 crisis arrived which will continue to have an impact on the economy and our business.
“The COVID-19 situation had a significant impact on our business performance across the group in March and April (and continued to do so in the post year end period) due to the shutdown of retail stores. Thankfully, as at the date of release of these financial statements, there is a semblance of normality returning with virtually all retail stores now fully open across the group, albeit subject to strict social distancing measures.
“However the future, at least in the near term, is unclear as we and indeed the world come to terms with living under the threat of COVID-19 and what its short, medium and long term effects may be. There is currently a risk of a second wave which could lead to reinstatement of lockdown restrictions and there will be economic consequences which we do not yet fully understand.”
Fraser Group’s revenue of £2.9bn was down 12.6%, once the impact of exchange rates and acquisitions are stripped out. That reflects the impact of lockdown store closures in the UK and Europe, which was partially offset by a better performance in the Premium Lifestyle business. Underlying cash profits (underlying EBITDA) were flat at £354.4m.
The group expects underlying EBITDA to increase 10 – 30% in the current financial year.
Continued uncertainty means no final dividend has been declared and the share buyback programme has been suspended.
The shares rose 2.6% following the announcement.
Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown comments: “These are a decent set of results from the high street staple. Store closures during lockdown inevitably knocked the top line, but the overall picture is better than might have been feared. There are a few reasons for this, the biggest is likely to be the simple fact the group sells sports gear, which we know was popular with those doing home workouts during lockdown. After all we were a lot more likely to grab a new pair of sports leggings online than we were a new outfit for the office. This wasn’t enough to stop revenues falling overall, but it will have bridged some of the gap, and coupled with well controlled costs meant underlying cash profits didn’t make for too ugly a read.
“Looking ahead, Mike Ashley’s game plan is a little confusing though. Having acquired an eclectic mix of high street names including GAME, House of Fraser and Jack Wills, the group’s future spoils rest on the successful execution of its so called elevation strategy. The plan is to make the stores more experience focussed, adding in things like digital mirrors and generally making the format a little swankier. That sounds good on paper, but exactly how all the pieces of Ashley’s high street puzzle fit together remains to be seen.
“Getting the stores where they need to be, and securing long-term, sustainable growth is going to take a while, and a lot of money. Making the stores more attractive will also help relationship management with the likes of Nike and Adidas, who will be more willing to give the group access to a higher calibre of stock. Overall, the plan is the right one, but the story now needs to be about executing it.”