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July 14, 2011 9:49 am
Sports Direct founder Mike Ashley has fired a shot across the bows of competitors JD Sports and JJB Sports, outlining a challenging series of earnings targets for the next four years as the retailer seeks to compete in new fashion and sports equipment markets.
Full-year results on Thursday showed UK retail revenues rose more than 10 per cent and the retailer confirmed it had hit targets for its staff incentive plan, meaning more than 2,000 employees are in line to receive bonus pay-outs of more than £40,000 each, based on the current share price.
This is more than double the average Sports Direct salary of £20,000.
Having exceeded the target of £195m ($314m) of earnings before interest, tax, depreciation and amortisation for 2011, the retailer unveiled ebitda targets for the next four years, rising from £215m in 2012 to £300m in 2015, a clear sign of management’s desire to expand the business and shed its discount image.
“It’s hard to think of another retailer that would give you a forecast for four years,” said Jonathan Pritchard, retail analyst at Oriel. “Only a confident management team would set out these targets, but the incentive scheme has had a massive impact on staff morale and improved customer service.”
Sports Direct’s new “premium lifestyle division,” resulting from last week’s £7m acquisition of a majority stake in designer retailers USC and Cruise from Sir Tom Hunter’s West Coast Capital, is a key part of its expansion plans. “We will position them a notch above JD Sports’ current equivalent brands, that’s our aim,” said Dave Forsey, chief executive, referring to JD’s Bank and Scotts stores that sell upmarket labels.
Analysts describe USC as a “chronically underinvested business” but are encouraged by management comments that a 5 per cent margin is being targeted in the medium term. In its own stores, Sports Direct is looking to channel growth by extending product lines through collaborations with niche brands, as it has done with Soccer Scene and running specialist Sweatshop.
“There is massive demand from consumers for more specialist products and categories,” said Mr Forsey. “We want to extend across more categories, and bring in expertise to help.”
The retailer outlined plans to open more branches in Europe, from its current eight into all 17 euro-denominated countries within five years.
In the 12 months to April 24, Sports Direct reported total group revenues ahead 10.2 per cent to £1.6bn, but pre-tax profit eased from £119.5m to £118.8m. Diluted earnings per share slipped from 14.76p to 13.83p and the retailer continued its trend of the past two-and-a-half years by again declining to pay a dividend.
The shares eased 1½p at 256½p, but have risen 129 per cent in the past year.
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