"Everything is Changing,'' Sports Direct entitled its most recent annual report. Mike Ashley, who started the retailer more than 30 years ago, should heed that advice -- and take the company private.
Investors have been prepared to put up with the owner of Newcastle United's foibles -- among them taking stakes in competitors including Tesco and Debenhams -- as long as the sporting goods retailer was performing.
Now it's not. Revenue growth has slumped, as the chart above shows. On Friday, the company warned it won't meet its full-year Ebitda target of 420 million pounds ($612 million), blaming unseasonably warm weather and poor trading conditions on the high street. Sports Direct had already cut the target from a lofty 480 million pounds in July.
Now Ebitda may be as low as 380 million pounds, and investor scrutiny is only going to get more intense. Sports Direct has already attracted ire over its unusual corporate governance arrangements as well as a lucrative bonus plan that pays out millions of pounds to executives and employees.
Then there is inexorable rise of JD Sports. Unlike Sports Direct, which relies on a stable of lower priced own brands, it is able to stock the most up-to-date styles from the big sportswear houses. Historically, JD, which stocks the sort of hot trainers that hipsters -- or fitsters -- really want, has traded at a discount to Sports Direct. That has now reversed, as the chart below show.
JD Sports' announcement before Christmas that it expects full-year pretax profit will be 10 million pounds more than analyst estimates only makes Sports Direct's performance look even worse.
The 40 percent decline in Sports Direct's stock price in the past three months has cut Ashley's personal wealth to $3.9 billion, according to the Bloomberg Billionaires Index. But he already owns 55 percent of the retailer, and the rest is valued at about 1.2 billion pounds, making a buyout affordable.
The company doesn't have a huge burden of existing debt that could complicate an LBO. At 370 million pounds, annual Ebitda is more than twice Sports Direct's 137 million pounds of long-term debt, according to Bloomberg data.
Sports Direct is getting almost as cheap as a pair of one of its own-brand trainers. That's a bargain that Ashley might find hard to resist.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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