LONDON (Reuters) - British retailer Sports Direct (SPD.L) has delayed publishing its annual results, warning problems integrating its purchase of House of Fraser stores and increased scrutiny of its accounts could affect the financial guidance it gave in December.
Shares in the company, controlled by Newcastle United soccer club owner Mike Ashley, dropped as much as 16% to a seven year low of 220.2 pence on Monday.
Sports Direct described trading in December as “unbelievably bad”. While it did not give an update on its core sporting goods stores on Monday, it referred to complexities in integrating the House of Fraser (HoF) chain it bought last year and “uncertainty as to the future trading performance of this business”.
“HoF is clearly a disaster area, so this is a serious situation,” independent retail analyst Nick Bubb said.
Sports Direct’s core chain has been a relatively resilient performer in recent years, compared with a string of British retailers that have collapsed in the face of subdued consumer spending and a shift to shopping online.
However, the group has also engaged in a raft of dealmaking that has complicated the business. It recently spent time trying - and failing - to buy department stores group Debenhams, after purchasing House of Fraser out of administration last year.
On Monday, the company said it also now controlled video gaming retailer Game Digital, “thereby adding to the complexity of the business”, according to Bubb.
AJ Bell analysts questioned whether the acquisition spree was proving a distraction. “Since Mr Ashley gave guidance both including and excluding House of Fraser some eight months ago, this implies that trading in the core retail business has also disappointed,” they said.
Sports Direct said in December its core business was on track to meet its target of growing earnings by 5-15 percent in the year to April 29, 2019, but the House of Fraser acquisition would result in a drop in full-year earnings.
Sports Direct, which is 61% owned by Ashley, said the timing of its results had also been affected by a review by Britain’s accounting watchdog of Grant Thornton’s audit of the company’s results for the year ended April 29, 2018.
It said that meant the company had to compile more information than in previous years.
Britain’s Financial Reporting Council (FRC) last week said all of the country’s leading accounting firms had failed to meet quality targets set by the regulator for auditing company books for a second year in a row, with Grant Thornton and PwC earmarked to join KPMG for tougher supervision.
Auditing has come under scrutiny after British builder Carillion and retailer BHS collapsed, and Grant Thornton was already being investigated by the FRC for an earlier audit of Sports Direct, and more recently of café chain Patisserie Valerie, which entered administration.
Britain’s competition watchdog has proposed that all but the very biggest top 350 listed companies should have two auditors in a bid to improve quality, but the government has yet to approve a law to implement this.
The FRC has been criticized for being too soft on auditors and is being replaced by a new, more powerful watchdog.
“Sports Direct believes its accounts and their audit to be at an advanced stage,” it said.
The company had planned to publish its results on July 18, but said it now expected to do so between July 26 and Aug. 23.
“Sports Direct would note that its core principles in regards to its financial statements are to be conservative, consistent and simple,” it said.
Ashley had said in December there were significant challenges for House of Fraser, but there was also a “fantastic opportunity” to revive the chain.
Additional reporting by Huw Jones; Editing by Mark Potter and Emelia Sithole-Matarise