LONDON (Reuters) - Sports Direct SPD.L forecast core earnings growth of as much as 15% this financial year helped by a nascent turnaround at department store House of Fraser, as investors backed a plan to change the group’s name to Frasers Group Plc.
Problems integrating House of Fraser, which Sports Direct bought out of administration last year, have dragged on the group’s earnings, with founder, CEO and controlling shareholder Mike Ashley saying previously that the 90 million pound ($115.47 million) purchase may have been a mistake.
For the 12 months to April 26 2020, Sports Direct said it expects underlying core earnings (EBITDA) to grow between 5% and 15% to between 356 million pounds and 390 million pounds from the 339 million pounds it made in the previous year.
Shares in the company soared by almost 30%, hitting their highest in nearly four years.
Sports Direct had declined to give forward-looking guidance in July, blaming the uncertain impact of House of Fraser on its bottom line.
But on Monday it said it had stemmed losses at the department store chain by rectifying mistakes made by its previous management, cutting costs and changing the product mix to one that generated higher margins.
“We are starting to see the green shoots of recovery as we continue to integrate the business into the group,” non-executive chairman David Daly said in a statement.
The company said that despite the improving performance, a number of House of Fraser stores were financially unsustainable and some were likely to shut.
Liberum analysts called the first half-results very strong and said that given the outlook, Sports Direct’s market capitalization was too low.
The group’s name change, which is expected to take effect later on Monday, reflects a wider retail offering which includes new Frasers luxury lifestyle stores.
Losses in the premium unit, which in addition to House of Fraser includes upmarket fashion store Flannels, narrowed to 5.6 million pounds in the half year to Oct. 27 from 29 million pounds a year earlier.
A 71% rise in earnings in its European retail business also helped boost half-year results.
Sports Direct said the clear outcome of Britain’s parliamentary election last week would make the market more predictable, while cost savings at the group, which has recently added Game Digital UK, Evans Cycles and Sofa.com to its portfolio, would help boost profits.
Underlying earnings (EBITDA) including acquisitions for first half rose 22% from a year earlier to 181.2 million pounds.
The group repeated its belief that it would not be on the hook for any “material liabilities” from a 674 million euro bill from Belgium’s tax authorities and that it was seeking a resolution as soon as possible.
Some 62% of Sports Direct is owned by Ashley, who also owns Premier League soccer club Newcastle United. His relationship with investors has been rocky recently after a series of missteps over corporate governance and employment.
Reporting by Sarah Young; editing by Kate Holton, Kirsten Donovan