British Billionaires Regret Buying House Of Fraser, An Old Department Store

In July 26th, Sports Direct, the British sporting goods retail companies under the name of Mike Ashley, a British billionaire and retail tycoon, announced its 2019 annual report and announced that its chief financial officer had resigned from his personal affairs.

Sports Direct should have announced its earnings in July 15th, but the potential reasons for this delay are as follows:

Jon Kempster, chief financial officer of the two years in office, left his deputy Chris Wootton to take over.

The tax bill, which is about 674 million euros from the Belgian government, is currently being processed in consultation between the two sides (Sports Direct).

The biggest problem is also the British high-end department store bought by the company last year at 90 million pounds: House of Fraser (Fred department store, hereinafter referred to as "HOF").

"This is more like a HOF horror story," said Neil Wilson, chief market analyst at Markets.com. "Sports Direct now has every reason to regret buying HOF. Originally full of expectation, now a chicken feather. "

"If we have regrets, we will make a completely different decision in August 2018," Mike Ashley said. He admitted that it was not easy to pull HOF from bankruptcy to the right track. He pointed out that HOF not only had a serious problem of underinvestment, but the former responsible person was also "greedy". After his team took over, he found that "everywhere is a fatal problem."

Last August, when Mike Ashley announced the HOF transformation strategy, it pointed out that it planned to retain most stores and create "Harrods in high street retailers". But he said on Friday, "in the short term, it is impossible to prove that it is like buying a roadside malfunction vehicle and dragging it to the garage to repair it. In the long run, we hope to develop in an ideal direction. "

BBC personal financial reporter Simon Gompertz pointed out that Mike Ashley paid 90 million pounds to acquire HOF, and to ensure that HOF can go on, Sports Direct sacrificed 54 million pounds profit. Few of the 54 existing stores have seen hope that some stores are still losing money after the rent is reduced to zero.

Mike Ashley points out that stores will be slashed in the next few months, and smaller stores in small cities will bear the brunt. Although most stores are closed, it is clear that thousands of employees will be affected.

Prior to Sports Direct, the original plan of HOF was to close 31 of the 59 stores. When Sports Direct acquired HOF, the department store had 59 stores, of which 5 were closed at the end of last fiscal year (April this year).

Sports Direct also said it would close its stores but did not disclose specific data. When announcing the acquisition of HOF holding power, Mike Ashley revealed that it would retain its existing stores as far as possible. "Our goal is to keep at least 80% of the stores," Liam Rowley, head of strategic investment at Sports Direct, said at the time.

Sports Direct said recently: "in the case of zero rent, there are still a series of stores that are still losing money. Unfortunately, this is not sustainable. We will assess the long-term business structure and estimate that the number of stores remaining in the next 12 months will be further reduced. "

Mike Ashley pointed out: "1~5 points, 1 points are bad performance, 5 points are very good performance, HOF is 1 points. Despite our efforts to reverse business, time will not be short nor difficult. "

As of the 28 fiscal year of April, the key business data of Sports Direct are as follows:

Sales increased by 10.2% to 3 billion 700 million pounds compared with the same period last year, excluding the acquisition and the fixed exchange rate, which fell by 1.9% over the same period last year.

EBITDA (profit before tax and depreciation and amortization) fell 6% to 288 million pounds, excluding HOF, an increase of 10.9% over the same period last year.

Pre tax profits rose by 5% to 143 million compared to the previous year, and after tax profits fell 9% to 91 million 500 thousand pounds.

Retail sales in the UK increased 0.3% to 2 billion 187 million pounds compared with the same period last year, while the high-end lifestyle (including designer brand retailer Flannels) increased by 26.3% to 205 million pounds over the same period last year.

European sports retail sales fell 5.9% to 600 million pounds, while the world's other market sales increased 12.2% to 216 million pounds.

HOF sales of 331 million pounds, operating loss of 54 million 600 thousand pounds, higher than analysts expected.

Sports Direct pointed out that the environment is very difficult. "The current physical retail market is in dire straits. If there is no support from the government, it will probably be on the brink of collapse. Sports Direct is not immune. In fact, if we didn't invest in upgrading stores in recent years, we will encounter big problems in the future.

Sports Direct points out that the strategy of group investment in store upgrading is "consistent with the requirements made by these brands years ago, but we feel that the other side still doubts whether we will implement the strategy in an all-round way. We will continue to cooperate with these brands and believe that we will achieve win-win results in the end.

Sports Direct also said that brand relationship is one of the keys to reversing HOF's performance and also the key to the development of the group. It is very important for a company, especially a sports product retailer, to get the source of the best seller. "Our brand relationship with the designated third party brand is changing."

Mike Ashley said that Flannels's performance was excellent. "If you score like HOF, Flannels is 4 points, its sales in fiscal 2017 will be 60 million 400 thousand pounds, and it will rise to 174 million pounds in the 2019 fiscal year. We will continue to upgrade Flannels's stores and e-commerce websites, hoping to promote its score to 5 points in the near future.

About Sports Direct, the fashion brand French Connection holding 27% shares, the group said: "we remain independent supplier / retailer relationship with French Connection, and hope that this relationship will be more robust and smooth. We do not participate in management decisions, only knowing that they began to consider strategic options including sales in October last year. They walked too long and urged the management to reach an ideal decision as soon as possible. "