Consumer

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

You're a billionaire, under fire from politicians for treating employees like it's still the nineteenth century. Shareholders aren't happy about the 50 percent drop in the stock this year, either.

Sporting Life
Sports Direct's share price reflects its torrid year
Source: Bloomberg, Company Reports

What do you decide to include in your half-year earnings?

Your plans to buy a private jet, and start stocking your daughter's beauty brand, naturally. Then drop in a profit warning.

It's a cynical -- or tasteless -- maneuver by Mike Ashley, who controls Sports Direct International Plc. Expect outrage over the wisdom of buying a $51.1 million corporate jet months after the company was accused of failing to pay employees the minimum wage. Just don't let it overshadow the fact the purveyor of cheap tracksuits isn't performing as it once was.

And Ashley looks increasingly out of his depth.

A 57 percent fall in profit before one-time items was bad enough. Sports Direct was hurt by sterling's fall since the Brexit vote and increased provisions at its poorly-performing international business. Worse still, the gross margin at its core U.K. operation collapsed, falling 6.1 percentage points to 40 percent in the first half.

Full-year profit will now plumb the depths of the 265 million-pound to 285 million-pound range of analyst estimates.

Running Out of Steam
Sports Direct's profit is expected to slump this year
Source: Bloomberg, Company Data
Figure for 2017 is based on analyst estimates

So who are the top executives who will fly in to troubleshoot the business?

They aren't there. Ashley stepped into the CEO role after Dave Forsey stepped down in September. The company still lacks a permanent chief financial officer. Then there's the chairman: Keith Hellawell. Sports Direct's minority shareholders voted the ex-police chief out in September. Ashley persuaded him to stay on. Luckily for him, Ashley will have the final say. It helps to owns 55 percent of the retailer's shares.

There is one sop to investors: the company announced a new non-executive director, investment banker David Brayshaw. It's a start, but looks inadequate.

You'd imagine, then, a company in such a position would tread carefully around questions of governance.

Not so Sports Direct. The company said on Thursday it is licensing the rights to Sport FX, a cosmetic brand owned by Ashley and whose directors include his daughter, Matilda.

Governance concerns aside, this looks sensible. Beauty is a fast-growing area of the market. So why shouldn't Sports Direct compete with the likes of Boots and Primark to offer cheap make-up? It's just that Ashley's execution is unconventional.

That's the conundrum when it comes to Sports Direct: Ashley's strategic instincts are usually right. He just doesn't always go about things in a shareholder friendly way. When the stock was rising, that was acceptable. But the shares are going the other way and trade a steep discount to rival JD Sports Fashion Plc.

In the Slow Lane
JD Sports' forward price earnings premium to Sports Direct shows no sign of abating
Source: Bloomberg Intelligence

It's hard to see how this can reversed until Ashley learns how to untie the laces of his sneakers.

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