UK sports fashion retailer Sports Direct was forced to delay the publication of full-year results yesterday after auditors refused to sign off on the retailer’s latest accounts.
The move has widely been seen as dealing a blow to Mike Ashley’s assault on the UK high street, with the Sports Direct boss aggressively targeting struggling retail groups.
The decision to delay the release of its earnings for the year to April sent Sports Direct’s shares down as much as 16% initially, in a fresh twist in the often volatile relationship between the sportswear boss and the City of London.
The retailer said that it would push back its full-year results, which were expected on Thursday, for up to five weeks as its auditors at Grant Thornton attempt to resolve what it described as “a number of key areas” in the results that “could materially affect” its earlier financial forecasts.
The statement followed the abrupt departures this month of the company’s head of retail Karen Byers and company secretary Cameron Olsen.
With the company and auditors having had three months to prepare for results combined with the sudden departures of the two executives has caused additional concern among investors.
US hedge fund Coltrane Asset Management has taken a 3.3% stake in the retailer, according to a filing issued yesterday. The fund scuppered a financial rescue of Interserve, the government contractor, earlier this year and made £4m from the collapse of Carillion, a construction outsourcer.
Sports Direct said that the integration of House of Fraser, the struggling department store chain it bought out of insolvency proceedings almost a year ago, and the future financial performance of that business, had contributed to the decision to delay its accounts.
The business lost about £3m a week between August and October last year but Ashley has remained confident he can turn it round.
Sports Direct said in December that it expected its underlying earnings before interest, taxation, depreciation and amortisation to rise between 5-15%. That excluded the impact of acquisitions including House of Fraser, Evans Cycles and Sofa.com.
It has also agreed to buy video game company Game Digital for £52m since the year end.
RPA Perspective Auditor Grant Thornton, is struggling to repair its reputation and may well regret ever accepting the job of approving the sportswear retailer’s accounts. So it would be understandable if it wants to test every assumption in the 2019 numbers.
Last week the auditing outfit was put into the regulatory equivalent of special measures after 50% of its work was classed as sub-standard in the Financial Reporting Council’s latest annual review of quality. The 2018 audit of Sports Direct was one of eight probed by the FRC’s inspectors.
Yet Sports Direct’s investors will be concerned as to what is behind the phrase: “Current uncertainty as to the future trading performance.”
The department store chain was acquired from administration in 2018, with the ambition of turning it into “the Harrods of the high street”, according to chief executive Mike Ashley.
Sports Direct itself appears to be struggling for clarity after Ashley’s deal-making blitz in the past two years, warned analyst Peel Hunt, which has suggested that Sports Direct’s finance department, and thus the auditors, “seem to have been overrun by the amount of work required, given the changing shape of the group.”
Sports Direct has given itself until 23 August to announce numbers for the financial year that ended on 28 April – so within a week of the four-month reporting deadline for quoted companies.
