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Jul 16, 2015
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Sports Direct pledges deals to boost European ambitions

Jul 16, 2015

Sports Direct said it expected to seal elusive European acquisitions over the coming year to build on its dominance of the British sporting goods retail market.

Founded and majority controlled by Newcastle United soccer club owner Mike Ashley, the group has grown rapidly in Britain through a mixture of M&A and cheap prices. However, a push to replicate its success across continental Europe, a market eight times the size of the UK, has proved slower going.

A lack of acquisitions in 2014/15 forced Sports Direct to cut the 2016 core earnings target for its lucrative staff bonus scheme on Thursday. This brought it back closer to market consensus and weighed on its shares which dipped 0.4 percent.

"I am confident that there will be some acquisitions this year," said Sports Direct Chief Executive Dave Forsey, adding a few deals had fallen at the last hurdle in the past year.

Sports Direct is also focusing on opening and improving stores, pushing up higher margin own brand sales and strengthening its online range. These elements helped to drive a 21 percent increase in 2014/15 underlying pretax profit to 300 million pounds ($469 million).

The group, which has 440 UK stores and another 220 in continental Europe, reported a 4.7 percent rise in total sales and pushed its gross margin up 110 basis points to 43.8 percent.


The company said it was targeting new store openings in the UK and overseas in 2015/16 and added that trading at the start of its new fiscal year was in line with its expectations.

"We retain our 'Buy' recommendation based on the combination of long term scale prospects and improving profitability across the existing group," Espirito Santo analysts said.

"The prospect of meaningful acquisitions should allow investors to get a more tangible feel for how the long term growth path will develop."

Sports Direct, whose permanent staff are offered lucrative share bonus schemes, said it would revise down its 2015/16 adjusted core earnings target of 480 million pounds to 420 million pounds, reflecting a lack of acquisitions. All other targets for the further three years of the scheme to 2019 remained unchanged.

It awarded around 2,000 staff some 5 million shares worth 37 million pounds, after they met profit targets set out in 2011. The award works out at around 18,000 pounds per employee at a current share price of 731 pence.

Some 15,000 Sports Direct British workers on "zero hour" contracts are not included in the scheme. Forsey said on Thursday that Britain's commitment last week to raise the minimum wage would increase its wage bill by 1 to 2 percent.

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