Comment: Sports Direct has a lot to play for

Soaring sales and a double-digit rise in profits might reasonably be expected to be cause for celebration. 

But Sports Direct’s interims last week, which delivered both, were instead greeted by a share price fall.

The numbers were a shade below what many in the City had hoped for and, while they did not represent one in the net against the retailer, they prompted some to wonder whether the wobble might signal the possibility of a Man U-style fall from grace. 

A spat with supplier Adidas and news that veteran finance director Bob Mellors is to leave did not help sentiment towards the retailer, which during the reporting period celebrated its entry into the FTSE 100.

The point remains though that management’s full-year EBITDA target of £310m is still intact. Arch-rival JJB has gone to the great relegation zone in the sky and many opportunities remain for Sports Direct to continue its growth, at home and abroad.

Online now accounts for almost 16% of sports retail sales and there is space for that figure to rise, especially if synergies between stores and the digital offer can be improved – as broker Oriel noted, the current absence of a click-and-collect service is an obvious weakness.

Next spring Sports Direct will open a 50,000 sq ft store on London’s Oxford Street in premises formerly occupied by HMV. The shop will incorporate various “enhanced concepts” in categories such as running, outdoor and football and is seen as a model for roll-out to big UK cities.

Sports Direct is reshaping its estate, closing smaller branches and reopening bigger ones with an average 60% more space. While sales densities have fallen, a lower cost-to-sales ratio has delivered a higher net contribution per sq ft. An improved model, incorporating digital elements, would likely help to keep it on form. 

As Dixons has shown, bricks-and-mortar can be an advantage in the multichannel age. Done well, Sports Direct’s new generation of stores should create an opportunity for it to reinforce its retail premiership status.