‘Shambles’: House of Fraser posts £54.6m loss

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Chain’s owner, Sports Direct, expresses regret at purchase and says more stores will close

The consequences of Sports Direct’s acquisition of the struggling department store chain House of Fraser have been laid out in stark terms in the group’s annual results.

The figures published on Friday revealed that House of Fraser made a £54.6m operating loss, worse than the £50m expected by analysts.

In a frank admission, the Sports Direct chief executive, Mike Ashley, indicated he regretted buying the ailing business last August.

The group confirmed plans to close a number of House of Fraser’s stores in the year ahead. It said a number of the group’s 54 remaining stores, after five closures, were paying zero rent and yet were still unprofitable.

After buying the department store out of administration for £90m, Sports Direct admitted it faced a “significant challenge” in turning around the business and raised the possibility it would not be a “viable ongoing entity”.

“As we have continued to look under the bonnet as we integrate the business we have found that problems are nothing short of terminal in nature,” said Sports Direct in a statement which blamed House of Fraser’s previous management for its troubles, saying they had left the business in a “shambles”.

After less than a year of ownership, it wrote down the value of its investment by £14.5m, after a tough period of trading at the chain where key brands have exited and been replaced by discounted Sports Direct merchandise.

In a dedicated section on House of Fraser in the annual results of Mike Ashley’s retail group, it accused the former owners of serious underinvestment in stores and “excessive and unsustainable outsourcing and financing.” It said problems included selling brands to House of Fraser’s former Chinese parent group shortly before it fell into administration last year.

“On a scale out of 5, with 1 being very bad and 5 being very good, House of Fraser is a 1, albeit we are trying very hard to turn the business around this will not be quick and it will not be easy,” the statement said.

“Even though we do believe there could be a bright future for House of Fraser, and indeed have publicised our Frasers vision which we are very excited about, if we had the gift of hindsight we might have made a different decision in August 2018.”

Sports Direct said it could not estimate profits for the group, which includes hundreds of sports stores, USC and the upmarket Flannels and Cruise chains, for the year ahead given the uncertainty about the number of House of Fraser stores it would continue to operate and the “operational and investment issues” it faced there. It said the group would remain a going concern and may be able to update guidance after six months.

The sprawling results statement also warned of “significant uncertainty” about future profits across the entire retail group and revealed a surprise €674m (£605m) tax bill from the Belgian authorities.

At the group’s core sports chain, underlying profits slipped 4.7% to £264.7m. Underlying sales at the group’s established UK sports stores were down 1.6% as the company said high street retail was undergoing “significant changes not helped by the uncertainty the population is experiencing in relation to Brexit”.

In an extraordinary lengthy and ranting statement released after the markets closed last night, Sports Direct also heavily criticised the management and advisers of Debenhams, the department store it tried and failed to gain control of earlier this year.

Ashley was widely known to be planning to merge House of Fraser with Debenhams as part of a masterplan to revive the two businesses. But Sports Direct’s £150m in Debenham’s shares was wiped out when the chain went into administration this year.

The company is currently giving financial backing to a legal challenge to Debenhams’ restructure plan brought by a landlord. Friday’s statement added that it was examining “avenues to seek redress” through a civil or criminal process after its offers of financial support were knocked back.

John Colley, associate dean and professor of practice at Warwick Business School, said: “Mike Ashley’s failed bid for Debenhams may have provoked an angry response at the time, but it may have saved him and Sports Direct from themselves.”

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