Sports Direct has issued a fresh profit warning, blaming “extreme” currency movements overnight as the pound remains in the doldrums.
The controversial Mike Ashley-controlled retailer, which has already issued two profit warnings this year, said it had entered into a hedging arrangement for the pound exchange rate against the US dollar “in light of recent downward currency movements”.
This week the pound has fallen to a 31-year low against the dollar over fears surrounding Britain’s exit from the European Union and a flash crash overnight that hit the market in Asian trading.
In an unscheduled update today, Sports Direct said “extreme movements overnight” caused that rate to crystalise at 1.19. This will hit the company’s underlying full-year profits by about £15m.
It added this could rise to a “further” £20m if the exchange rate is 1.20 on average throughout the remainder of its financial year.
Sports Direct sources much of its own-brand product in US dollars from Asia.
Last month, the retailer said it expected underlying profits to be £300m based on an exchange rate against the dollar of 1.30.
One City analyst said “there is a large amount of self-inflicted pain” at Sports Direct and insisted “the level of pain they’re feeling is not going to be the same across the industry” because other retailers have hedged “in a more sensible way”.
Retail Week Prospect analyst Philip Wiggenraad added: “At best, Sports Direct’s predicament appears to have been a spot of bad luck as it entered into a hedging agreement at a particularly unfavourable currency rate.
“However, it also points to a lack of forward thinking. While other retailers with significant international exposure will also suffer from the recent weakness of the pound, we believe most have taken account of the recent currency volatility in the wake of the EU referendum and have managed to arrange better hedges than Sports Direct has done.”
Ashley was installed as Sports Direct’s chief executive last month in an effort to revive the fortunes of the firm. It has suffered a wave of negative publicity over its working practices, prompting an MP-led probe.