Sports Direct reports slow quarter as Ashley uncertainty grows

Updated 0912 am

Sports Direct said on Thursday it missed quarterly sales expectations after being caught out by an unseasonally warm winter in Austria.

This discouraged skiers and other winter sports enthusiasts from stocking up on gear.

Sports Direct said sales for its third quarter, the 13 weeks to 25th January, grew 2.6% to £771m, below a 6.5% rise at the half-year stage.

Nevertheless, the firm managed a 280 basis point gross margin increase at its core retail sports business.

Sports Direct’s notoriously aggressive discounting model and wide ranges—often making for chaotic-looking stores—have continued to provide it with an edge in this segment.

The firm, founded and still controlled by Newcastle United owner Mike Ashley said it was confident of achieving at least its targets for underlying earnings before interest taxation, depreciation and amortisation (Ebitda) of £360m, though that’s before a charge related to employee bonuses.

Ashley dealing puts topspin on shares

Despite underlying firmness in the business, the lacklustre result together with increasing uncertainty as to Mike Ashley’s intentions with his dominant holding in the group—he sold 2.6% of his holding in January, with little explanation as to why—will likely add further medium-term weight to Sports Direct shares.

They have trended downwards since 19th April 2014, a day on which Ashley had also cut his stake.

Investors also question Ashley’s use of Sports Direct International Plc. as a vehicle for large, and often complex, investments in other retailers.

These include a put option deal worth a 0.28% stake in Tesco Plc. in September, and the convoluted acquisition of a sizeable holding in UK department store chain Debenhams—Sports Direct first bought then sold a 6.5% stake in mid-January, and then entered a put option agreement in consideration of as much as 6.6% of Debenhams’ shares.

Finally it was revealed late in the month Sports Direct owned 203.1 million shares of the company, representing 16.56% of the voting rights.

Early trading in City Index’s Sports Direct International reflected a similar fall as per the underlying stock, which traded as much as 0.8% lower, before recovering and trading 1.2% higher.

Viable short-term support appeared to be nearby for the price, in the half-hourly view, though the stochastic-based indicator and trading system attached makes clear the stock isn’t in a particularly strong position.

On the other hand, adhering to momentum concepts closely means the Stochastic Reversal Cross System signalled a short exit yesterday morning.

Similarly, a Moving Average Convergence-based system still looks bullish on the near-term window, especially with the long signal it emitted on Monday not having been negated yet.

Overall, whilst there are clear signs of fading upside balance, there’s no emphatic downwards impetus either.