Sports Direct International (LSE: SPD) has just scored an own goal with its share price falling 3% in early trading as it announced a 72.5% fall in full-year 2018 preliminary reported profits to £77.5m. After the market had digested its statement, the stock dropped 6.86%.
Bad Sports
Sports Direct is still up 45% over the year, against around 7% for the FTSE 100, so long-term investors can take this on the chin. However, it does suggest that Mike Ashley’s group may have slipped up. The controversial boss began building a stake in department store Debenhams in 2017, and now owns nearly 30% of the group. The result: an £85m hit following the collapse in the troubled retailer’s share price, down 70% on a year ago.
Debenhams is not the only strategic investment Sports Direct is pursuing, it also has a stake in House of Fraser, French Connection and Goals Soccer Centres, although to what end, nobody really knows.
Street life
Although Sports Direct’s revenues rose 3.5% to £3.36bn, this was mostly driven by recent US acquisitions, with sports retail sales falling 2% in its main UK market. There was some good news, with strong pre-capex free cash flow rising almost 27% to £326.2m, although net debt more than doubled to £397.1m, due to the purchase of its own shares, strategic investments and investment in property. The National Living Wage also hurt.
Sports Direct also has to contend with the UK retail blight, although that may work in its favour as high street competitors go to the wall. The England World Cup run may have boosted sales too. At a forecast valuation of 24.2 times earnings, you are paying a high price for buying into failure, although that does not deter Peter Stephens. There is no yield either, and earnings per share are forecast to fall another 11% in the year to 30 April 2019. All this and Mike Ashley too? Not for me.
Mellow Yellow
Self-storage specialist Big Yellow Group (LSE: BYG) has also shone over the last year its share price rising 22% in that time. It is shining today as well, up 1.5% after publishing an update for the first quarter to 30 June.
The statement showed that its 74 Big Yellow stores increased like-for-like closing occupancy to 84.2%, an increase of 2.6 percentage points from 30 June. Its average achieved net rent per sq ft increased by 3.2% compared to the same quarter last year.
Store of value
The group’s like-for-like revenue increased by 7.6% on the same quarter last year, driven by a combination of growth in occupancy and rates. It is also pressing ahead with other developments, extending in Wandsworth and Wapping, constructing a landmark store in Manchester city centre, and submitting an application for a planned store at King’s Cross.
CEO James Gibson reminded investors that it continues to follow a “more aggressive expansion strategy, largely through the acquisition of raw land”. A forecast yield of 3.4% makes this FTSE 250 stock an attractive pick for income investors, despite its elevated valuation, currently 22.7 times earnings. Management is under fire for its executive pay practices, with Royal London Asset Management leading the charge. However, for me the future looks bright, the future looks Yellow.
