Sports Direct founder and chief executive Mike Ashley has warned that the future of his vast retail group’s bricks-and-mortar portfolio is dependent on the “broken and unworkable” business rates system being overhauled.

What a difference six months makes. Cut back to July and Sports Direct was scrambling to file its full-year results on the scheduled date – which had already been pushed back – having been upended by an eleventh-hour €674m tax bill from the Belgian authorities.

Then, when underlying EBITDA slid 6% to £287.8m, Ashley admitted he “regretted” buying beleaguered department store House of Fraser.

Today, the retailer’s interim results make for very different reading, with underlying group EBITDA rising 21.8% to £181.2m, or up 15.1% stripping out currency fluctuations and acquisitions.

The retail group – which also unveiled its rebrand to Frasers Group today – delivered a 14% uplift in group revenue during the period to £2bn. This figure was buoyed by recent acquisitions such as Game Digital and a 79.2% rise in its premium lifestyle division, comprising Flannels and House of Fraser. If its acquisitions were excluded, sales in its UK sports retail business fell 8.6%.

The City reacted positively to the results with the Sports Direct – sorry, Frasers Group – share price surging 30% today, and more than doubling since its last update in August.

‘I cannot keep loss-making stores open’

However, despite this improved performance, Ashley was bombastic as ever about the state of the retail sector and how he plans to operate within it.

Between joking about buying Harrods and hypothesising about when he would retire (“I’m 55 now, I’ve got to be nearly there”), Ashley slammed the government for its inaction on business rates.

When pressed about how many of House of Fraser’s 52-strong store estate would remain open in the upcoming year, Ashley said: “You tell me when the government is going to change rates.

“Why don’t we give our Boris a call this afternoon and ask, seeing as you can do things so quickly, why don’t you sort the rates out?”

“If [the government] doesn’t act soon Sports Direct – or should I say the Frasers Group – will have to move on, because you can only wait so long,” he added, saying that he would need to see reform in “months” rather than years in order to stay in unprofitable House of Fraser stores.

“The rates system is such a joke, it is so broken and unworkable”

Mike Ashley, Frasers Group

“All we want is to pay what we should. I don’t need and I’m not asking for any form of discount, but I cannot keep stores open, even when the landlord charges me zero rent – and by the way, a lot of them have been very supportive – and they still lose money. I cannot keep loss-making stores open and will not.”

Ashley said that there were stores where the retail group paid zero rent and business rates were “up to four times” what they should be and stores “that are massively profitable that [we] pay too little rates for”.

“The rates system is such a joke, it is so broken and unworkable. I said before with Philip Hammond that he was a joke – trust me, not a single thing has changed,” he said.

“The really profitable stores are subsidised by poor, underperforming stores – what kind of a system is that?”

Rolling out Frasers

By contrast, Ashley said the retailer plans to step up the rollout of its new Frasers fascia in the coming year. The business has converted the top floor of Belfast’s House of Fraser branch into a Flannels this month, and next year plans to convert the rest of the store into a Frasers. 

“House of Fraser and Frasers are very different concepts. Frasers will work because it will combine with Flannels. The Frasers stores will have Flannels inside of them in a lot of locations that have the space and all the criteria you need to put in a Flannels, will be hugely successful,” says Ashley.

Ashley likened the growth in premium lifestyle as seen in it Flannels stores to that of sportswear in the 1980s – a pace of sales growth he said he had not seen in “decades”.

To monopolise on this growth, the retailer said it is on track to open between five and 10 elevated stores in its premium lifestyle division in its current financial year. The retailer also aims to open between 10 and 15 elevated Sports Direct stores.

“I doubt many stores in the land are as profitable as our elevated Sports Direct ones”

Mike Ashley, Frasers Group

Chief financial officer Chris Wootton added that the retailer plans to open between five and 10 ‘elevated’ Flannels stores in the coming financial year, with a keen focus on regional locations where shoppers have less access to high-end luxury brands in bricks-and-mortar locations.

Ashley also said the “short-term pain” of sales decline in the retailer’s core Sports Direct stores was compounded by tough comparatives as they are pitched against last year’s men’s football World Cup. He also said the move away from discounting hampered sales growth but pointed out that margins had improved by 280 basis points to 43.4%.

Despite this lull in sales, Ashley reiterated his commitment to the group’s elevation strategy across its core Sports Direct store estate.

“I doubt many stores in the land are as profitable as our elevated Sports Direct ones – they have really hit a sweet spot with consumers.”

House of Fraser future hinges on rates reform, warns Ashley