Ahead of Sports Direct’s full-year results next week broker Investec has issued a note challenging the sports retailer to answer some key corporate governance questions and fully disclose business information.

The call for clarity comes after revelations that Sports Direct founder Mike Ashley lent JJB Sports executive chairman Sir David Jones £1.5m, raising concerns that Jones faced a conflict of interest.

However, Investec analyst Katharine Wynne said: “The role of Mr Ashley in the JJB Sports saga has reawakened market concerns about corporate governance. We would continue to argue that in Sports Direct’s case these concerns support the case for a discount rather than a premium valuation.”  

The questions Wynne believes investors should be asking Sports Direct’s management are:

  • Who are Sports Direct’s key lending partners and what are the company’s current facilities and its refinancing schedule?
  • What are the key banking covenants?
  • What is the company’s stock write-down policy? And what is the proportion of balance sheet stock that is more than 12 months old?
  • What is the company’s like-for-like sales performance over the past three years?
  • How many supply contracts have been lost over the past year?
  • What proportion of external sales of in-house brands was accounted for by JJB in 2008/09 and who are the other major accounts?
  • What is the status of the group’s current international licensing agreements?
  • How many of the stores from which the business trades are owned by the founder and what are the terms of the lease arrangements?
  • What is the status of the group’s sourcing and distribution agreement with Umbro (now owned by Nike) and its minimum purchase requirements?
  • Why has the company still not appointed an independent chairman and/or replaced the departed non-executive directors?

Next week Sports Direct is expected to report EBITDA of £135m and to cut its dividend.

For the first time since the retailer floated it will also reveal like-for-like sales.

Topics