Sports Direct and Mike Ashley: second-guessing an enigma
Jack Wills becoming the latest retailer to join Mike Ashley’s burgeoning business empire, July retail sales figures from the BRC, trading updates from Next, Wickes, Pets at Home, White Stuff and Flying Tiger.
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- More “glass is half empty and it’s got a crack in it” figures from the British Retail Consortium (BRC). Apparently, retail sales in July were “the worst on record”, as indeed they were the previous two months. Total retail sales grew (repeat, grew) by 0.3% and like-for-likes were up (repeat, up) by 0.1%. Hardly spectacular but these figures were against very tough comps last year. Expect the official ONS figures to be much stronger when they are released on 15 August.
- Decent H1 figures from Next. The business reported an increase of 4.3% in sales for the 26 weeks to 27 July. These results were better than expected and prompted a full-year guidance upgrade. Full year guidance for sales has increased from 1.7% to 3.6% and the profit guidance has been increased by £10m to £725m.
- Less rosy figures from a couple of other high street operators. On the back of heavy investment in digital marketing and “higher than planned” levels of discounting, White Stuff’s full year profits (EBITDA) declined by 31.6% to £4.1m, despite a 2.6% uptick in sales in the year to 27 April. Danish retailer Flying Tiger also saw profits decrease from £2.9m to £748,000, with sales falling from £48.1m to £47.3m. The homewares and gift specialist has 47 stores in the UK and will focus on improving performance at the existing estate rather than embark on further expansion.
- More encouraging performance from a couple of OOT operators. In the 16 weeks to 18 July, Pets at Home saw group revenue grow by 9.9% to £303.4m with retail revenue climbing by 8.7% (a very impressive +8.2% like-for-like) to £266.4m. Meanwhile, Wickes achieved a 9.7% increase in like-for-like sales to £2.77bn in the first half of 2019. The company attributed 2% of this growth to milder weather in March and April compared to the same period in 2018. Operating profits surged 49% to £52m. Strong figures ahead of its demerger from parent Travis Perkins, any coincidence?
Stephen Springham, Head of Retail Research:
Another week, another Mike Ashley acquisition. This week it was the turn of preppy Jack Wills to fall into Mr Ashley’s “evil” clutches, as most of our media “friends” reported it. Having collapsed into administration, Sports Direct bought the 100-store business for £12.8m.
So, a quick tot up of Mr Ashley’s empire (and apologies for any I may miss): the Sports Direct chain that he built up from scratch (which also includes Lillywhites). Other fashion retailers USC and Flannels. A host of fashion/sportswear brands, including Donnay, Dunlop, Slazenger, Karrimor, Kangol and Lonsdale. Newcastle Football Club. House of Fraser, which he acquired last year post CVA. And more recent retail acquisitions Evans Cycles and Game. And now Jack Wills. As well as minority stakes in other high street retailers, such as JD Sports and French Connection (and until recently, Debenhams).
Few business leaders seem to attract more controversy. Curiously, a journalist I spoke to this week described Mr Ashley as “dividing opinion”. I would suggest the opposite – the City and media alike seem to have forged an absolute watertight united front in denouncing him and everything he stands for. Rather than admire what he created in Sports Direct, which, love it or loath it, is one of the best retailers on the high street. And the shrewdness with which he has built up his wider empire. It seems ironic that other business leaders (e.g. Bill Gates, Jeff Bezos, Sir Richard Branson) are revered, yet Mike Ashley is so reviled by so many. Did the revered get to where they are without being as single-minded and ruthless? I sincerely doubt it.
A newspaper article I read this week bewailing his takeover of Jack Wills and the fact that he will tarnish a wonderful, upscale brand by taking it downmarket underlines so many of these prejudices. Those that think Mr Ashley only operates in the “pile it high, sell it cheap” market clearly haven’t set foot in a Flannels store. And what is so wonderful about an upscale brand that has lost its way, been over-expanded by private equity owners and racked up a whopping pre-tax loss of £29.3m in its last published accounts?
"Infuriatingly for the City, Mr Ashley will always keep his cards close to his chest. Second-guessing his actual motives and long-term plans has become something of a national pastime, but largely a fool’s errand. There’s a tendency to read too much into what might well be an off-the-cuff comment. Does he really regret buying House of Fraser and think the business is in terminal decline? Again, I sincerely doubt it, but there’s no harm in keeping landlords, suppliers, the press and the City on their toes."
Not to embark on a fool’s errand myself, there is nevertheless a pattern to his underlying modus operandi. Buy a business (often distressed) on the cheap, go straight to landlords to demand rent haircuts and seek other “quick win” cost-savings from other suppliers, before ultimately allowing the business time to breathe whilst a long term strategy is instilled. The acquisitions made over the last 18 months or so, including HoF are still at the second, “quick win” stage of the process. It would be wrong to interpret the current state of the HoF stores – outlets shifting (surplus?) Sports Direct stock – necessarily as a long-term direction of travel.
If there is a major concern about Mr Ashley’s empire, it is that it has become too big and is too disparate. Clearly, not all the brands have synergy but the main question marks surround how the portfolio of businesses can effectively be managed. Mr Ashley cannot conceivably run them all on his own. If reports are to be believed, he entrusts the running of his businesses to a close circle of long-trusted cohorts. But even their time and focus must be stretched and if the brands are to be fully revived and prosper, surely new blood and dedicated management teams will be required.
A few quick (and potentially painful) fixes before a long-term play. In the meantime, detractors would do well to heed the words of Bob Dylan and not criticise what they can’t understand.