Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

"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.

Shares Sink
Sports Direct shares have lost 40% in the past three months
Source: Bloomberg data

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.

Sales Growth Slumps
Sports Direct's revenue growth is stalling
Source Bloomberg data

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.

Reduced Expectations
Sports Direct's Ebitda target has shrunk
Source: Bloomberg data/company filings

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. 

Sagging Stock
Sports Direct shares have lagged rival JD Sports in the past 12 months
Source: Bloomberg Data

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.

Vanishing Premium
Sports Direct no longer trades at a higher earnings multiple than JD Sports
Source: Bloomberg data

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.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net