Sports Direct predicts difficult six months ahead

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The Independent Online

Sports Direct added to the high street gloom yesterday by warning that the retail trading environment would become "increas-ingly difficult" over the next six months.

Despite this, the company, which is controlled by Newcastle United's owner Mike Ashley, said it will still meet full-year guidance, with underlying profits expected to come in at £137.7m. Sports Direct has faced a turbulent time since listing on the stock exchange in February last year, and was badly hit by England's failure to qualify for the Euro 2008 football champion-ship. Shares in the com-pany have fallen to less than two-thirds of their float price and were down 2.25p to 96p yesterday.

Dave Forsey, the chief executive, said he "expects the retail trading environment in the UK to become increasingly difficult over the next six months". However, he added that "the resilience of our business gives us the confidence to repeat the guidance on full-year performance that we gave on 19 December 2007".

The company, which owns the Sports World chain and Lillywhites in Piccadilly, said that group turnover was £280m in the 11 weeks to 13 January and the retailer made gross profit of £126m.

The company declined to give any comparable figures, but analysts at Panmure Gordon said the numbers implied a gross margin of 45 per cent, down from 46.8 per cent in the initial public offering prospectus, for the nine weeks to 31 December last year when sales were £216.6m.

"This is not an encouraging trend, if not surprising, given the performance over the last six months," said Philip Dorgan at Panmure Gordon. He added that the statement was not full enough and that most analysts looked to have given up on the company.

Nick Bubb, of Pali International, said that although there is no new profit warning, the trading statement "still looks disappointing to us and we will be trimming our full-year forecasts".

Merrill Lynch, which led the float, has previously said it found it difficult to put a value on the business and has complained of a lack of communication with the management.

The deputy chairman, Mr Ashley, who made £929m when he floated Sports Dir-ect, owns almost 70 per cent of the company, but the City has become concerned he is more interested in football than his retail empire.

In December, Sports Direct revealed half-year revenue to 28 October of £668m, down 7 per cent. Half-year profits at the business, which has major licen-sing deals with the England replica shirt manufacturer Umbro, plunged nearly 70 per cent to £21.2m this year, down from £70.1m. Mr Ashley blamed bad weather and England's failure to qualify.