Mike Ashley loses £1bn as Sports Direct shares crash

Reviled retailer issues profit warning, sending shares down 15 per cent

Mike Ashley has a 55 per cent stake in Sports Direct that has tumbled in value (Rex)

The Sports Direct founder Mike Ashley has seen his paper fortune plummet by £1bn in the space of a month, marking one of the biggest slumps in the controversial businessman’s career.

The milestone was reached on a day when one top 10 Sports Direct shareholder revealed it had no faith in the chairman, the company issued a shock profit warning, analysts posed questions about the viability of its business model, and a court heard that staff at the retailer were supplied by human traffickers.

Shares in the company closed down 15 per cent after it informed the stock market that full-year profits would no longer hit targets, and could be as much as £40m off expectations. With shares at current levels, Sports Direct could be dumped from the FTSE 100 at the Stock Exchange’s next review in February.

Thousands of permanent staff are also unlikely to get life-changing bonuses, which were linked to profit targets, as the “unseasonable weather” over Christmas was blamed for a fall in trading.

The shares have retreated 41 per cent since 2 December, shortly before lacklustre half -year results were poorly received. Since then £1.82bn has been wiped off the company’s value, of which £1bn comes off Mr Ashley’s 55 per cent personal shareholding in the firm, leaving it worth around £1.4bn.

Investors and analysts warned that Sports Direct must improve operations, on the shopfloor and in the boardroom, or risk further falls, with Legal & General revealing that it voted against the election of chairman Keith Hellawell at the past two annual meetings.

Sacha Sadan, director of corporate governance at L&G, which has a 1.4 per cent stake in Sports Direct, said: “Legal & General Investment Management [LGIM] has had governance concerns for a long time and voted against the re-election of the chairman of the board in 2014 and 2015. LGIM believes good governance enhances shareholder value.”

Sports Direct is facing ever louder calls for better governance following revelations of abusive working conditions, the widespread use of zero-hours contracts, and executives hiding information from the board in relation to the administration of USC.

Analysts were equally scathing about Sports Direct’s performance and questioned the management’s assertions that the weather was to blame for a poor Christmas performance. Jonathan Pritchard and John Stevenson of broker Peel Hunt pointed out that rival JD Sports had issued a profit upgrade last month, and suggested the problems with Mr Ashley’s firm were more fundamental.

Tony Shiret, retail analyst at Haitong, and house broker to Sports Direct, urged management to reconsider its strategy of making other acquisitions.

Meanwhile a couple – Dariusz Parczewski, 47, and his wife, Bozena Parczewska, 46 – who supplied workers to Sports Direct appeared in court on modern slavery charges as part of an investigation into human trafficking. Both were charged with causing another person to perform forced labour. However, Sports Direct has not been accused of any wrongdoing.

Comment: Things have just got a lot more serious

James Moore, associate business editor

The turkeys that escaped the Christmas cull are coming home to roost at Sports Direct. Along with quite a few pigeons.

Having kicked off the new year with a scandal over the appointment of the nightclub promoter boyfriend of Mr Ashley’s daughter to head its international property arm, things have just got more serious.

The City might have overlooked that – as it has the company’s other governance issues – and there was little concern among institutions over the allegations of poor treatment and pay meted out to workers that surfaced last year. But a profit warning? That’s unforgivable. The excuses – it was all down to unseasonably warm weather –are also scarcely credible.

Next and M&S could plausibly claim to have been caught out by the mild spell when they reported poor sales. It wouldn’t have helped their winter ranges.

But Sports Direct majors on trainers, sports kit and other athletic gear. One might have expected those lines to do well in mild conditions. As they have apparently done at rival JD, which told the market to expect good things at the end of last year.

Those scandals I mentioned? The big investors that ignored them when the returns were good might now start to take a long hard look at what they’ve bought into. They won’t long tolerate such misbehaviour if this warning is indicative of a business that’s running out of puff.