Consumer

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

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Better late than never.

More than 24 hours after billionaire Mike Ashley was quoted in The Times saying Sports Direct was "in trouble" and could not match the profit it made in 2015, the company has issued a formal "clarification".

Sports Direct said underlying Ebitda in the year through April will be "at or around" the bottom of the 380 million-pound ($539 million) to 420 million-pound range it provided in January. The "or around" suggests that Ebitda could fall just below this range. This goes even further than the CEO's reported comments, which implied Ebitda would be be less than last year's 383 million pounds. 

Outrunning
JD Sports shares have overtaken those of Sports Direct
Source: Bloomberg

Most analysts' forecasts were already towards the bottom of range, with the average estimate coming in at 373 million pounds. But the 11 percent fall in the shares on Tuesday in reaction to the interview indicates that the market had not fully appreciated just how badly Sports Direct was trading. The decline probably also reflected some uncertainty given Sports Direct had made no announcement to the stock exchange.

If a company becomes aware that its performance is likely to drop below its existing guidance, investors will expect an update as soon as possible. The fact that the shares have fallen further on the back of the clarification is proof that the market needed updating.

It's not clear precisely when the company decided with certainty that the January guidance needed to be modified. It is possible that the comments attributed to Ashley expressed an emerging fear that became the company view overnight on Tuesday. Either way, investors will be left wondering why the new formal guidance couldn't have been issued sooner.

The events of the past few days underline the peculiarities of investing in Sports Direct. Ashley, with 55 percent of the shares, controls the direction of the company. His maverick style was lauded when things were going in the right direction. Now trading is tough, investors are not so keen.

The shares have halved since the end of July. To rub salt into Ashley's wounds, his old adversary JD Sports has been helped by sportswear's increasing emphasis on fashion -- and has the styles that fitsters want, unlike Sports Direct's own brands.

JD Sports has surged more than 40 percent over the same period, helped by a surprise profit upgrade before Christmas. JD Sports, which traditionally traded at a discount to Sports Direct, now trades at almost 18 times estimated earnings, compared with Ashley's 9.9 times.

Pacey Premium
JD Sports' better performance is reflected in a higher p/e ratio
Source: Bloomberg data

As Gadfly has argued, there is one remedy to Ashley's increasingly fractious relationship with investors: he should take Sports Direct private, at a fair price. That way, it wouldn't have to worry about updating investors in an orderly fashion.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Andrea Felsted in London at afelsted@bloomberg.net
Chris Hughes in London at chughes89@bloomberg.net

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