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Sports Direct International Plc Reports Profits Up 17% And Ahead Of Expectations

The shares of Sports Direct (LSE: SPD) dived 39p lower to 732p during early trade this morning despite the retailer saying its underlying first-half profits had advanced 18%.

The FTSE 100 member confirmed profits before tax had improved from £125m to £146m after group revenues jumped 24% to £1,345m. The figures were ahead of the management’s expectations.

Sports Direct said its core UK chain saw sales advance 13% and that its overseas operations witnessed sales soar 31%. The Premium Lifestyle division reported turnover up 83% while acquisitions contributed sales of almost £90m.

Online sales grew 43% and contributed to almost 16% of the top line.

Sports Direct added that gross margins improved by 190 basis points while free cash flow was £147m.

However, the retailer did not declare a dividend as it declared itself to be a “growth company” and felt it was “appropriate to preserve the Group’s financial flexibility… while evaluating attractive investment opportunities“.

Dave Forsey, the chief executive of Sports Direct, said:

While we retain the ability to invest in margin, inventory and Group marketing to deliver long-term sustainable growth, the Board is confident of achieving at least our full year internal underlying EBITDA target of £310m, before the charge for the Employee Bonus Share Scheme.

Prior to today, City experts were expecting Sports Direct to report earnings up 15% to 31p per share for the twelve months to April 2014.

Following this morning’s price reaction, the shares may therefore trade on a possible P/E of 24.

Of course, whether that multiple, today's results as well as the wider prospects for selling cheap tracksuits all combine to make the shares of Sports Direct a 'buy' is something only you can decide.

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> Maynard does not own any share mentioned in this article.