Can Sports Direct (LON:SPD) sprint higher following next Thursday’s half year results?
For the first 6 months of 2017 Sports Direct was having a pretty bog standard year. After opening at £2.73 it found itself struggling to break away from the £3 mark, with one April foray to £3.20 and not much else.
That all changed with the release of its annual results towards the end of July, a report that gave the stock enough momentum to climb from £3.02 to a 17 month peak of £4.26 in the space of less than a month. Since then it has pulled back from those highs, however, with Sports Direct now sitting at a current trading price of £3.82 (Spreadex, 08/12/2017).
What was so damn appealing, then, about July’s full year update? Well, on the surface things were pretty ugly; while group revenue jumped 11.7% to £3.25 billion, underlying pre-tax profit plunged 58% to £113.7 million following sterling’s post-Brexit slide. However, Mike Ashley’s claim the company would grow earnings by between 5% and 15% in its next financial year thanks to its upmarket ‘Selfridges of Sport’ flagship stores – it is set to open 12 to 18 of these ‘new generation’ locations in 2018 – got investors to ignore that awful headline profit figure.
The most recent statement in September was greeted with less enthusiasm, even if Sports Direct’s outlook remained ‘optimistic’ in line with what was put forward back in July, mainly because it came on the same day as the latest shareholder revolt over Keith Hellawell’s position as chairman.
In terms of Thursday’s interim update, Sports Direct will need to show it is actually on track to deliver that aforementioned 5% to 15% growth in underlying EBITDA, as well as some more information on how its much-touted flagship stores are performing. Given the current UK retail landscape, it’ll be interesting to see if the company’s attempted push upmarket has suffered from the squeeze on consumers’ real wages.
Sports Direct International PLC has a consensus rating of ‘Hold’ alongside an average target price of £4.22.
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