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As Sports Direct shares become upmarket Frasers Group, will it help?

A rose by any other name, suggests Shakespeare, would still smell as sweet. But in the case of Sports Direct (LSE: SPD), Mike Ashley is hoping that the new name of Frasers Group (LSE: FRAS) will also bring an upmarket image that could shift (or at least expand) the clothier’s clientele and boost profits.

The name and ticker change, which officially began on Tuesday morning, is still so new as to not quite be properly disseminated through financial websites. Indeed in this article I include both tickers just to make sure.

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What is interesting in the case of Sports Direct/Frasers Group, is that the name change represent far more than just a different moniker, but is the latest and perhaps most dramatic effort by the company to elevate itself away from the discount store image it has. The question of course is, will it work?

Latest results

The company’s latest earnings numbers certainly look good – reporting this week that it expects full-year underlying earnings to grow between 5% and 15%, far above previous expectations, and helping the (then) Sports Direct share price gain 30% on the day.

The company said revenue increased 14% compared to the previous year, EPS more than doubled and net debt dropped by almost 50%. Even more tellingly, the company said it sees “green shoots of recovery” at House of Fraser – a business unit that has been causing Sports Direct a number of problems since its acquisition.

The premium lifestyle division, of which House of Fraser is a key part, reported losses narrowing massively – down to £5.6m for the half-year compared with a loss of £29m for the same six months in 2018.

This certainly indicates things are moving in the right direction, and personally I am starting to see the stock in a more positive light. One of the major concerns I had with the company was its reporting error that led to an unexpected Belgian tax bill, but this too seems to be coming to an end.

Finance director Chris Wootton said that while then-auditor PwC did find some “clerical reporting errors”, neither it, the company itself, nor the Belgian authorities discovered evidence that VAT was underpaid. The whole debacle should draw to a conclusion early next year.

Strong foundation is key

While these efforts to move upmarket are all very well, I think the key factor for Frasers Group will be to maintain that which has helped it do so well in the past – the discount sporting goods brand. Mr Ashley may be interested in changing his and his company’s image (both have had some PR issues in the past few years), but Sports Direct as a store and a brand is not something to give up.

The business model that he implemented – buying distressed sporting brands that are familiar to the average UK consumer, and selling products at discount prices – has been successful. Luckily, he seems to realise this, and has no intention of changing the name or familiar red and blue branding of its 450 UK Sports Direct stores.

Personally I might just be taking a look at this one in the New Year as a potential investment.

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Karl has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.