Sports Direct's profits hit by link to Debenhams

Pre-tax profits fell to £77.5 million in the year to April 29, down from £281.6 million the previous year.

Sports Direct, which is run by founder Mike Ashley, owner of Newcastle United Football Club, said its UK sales were down two per cent over the year to £2.2 billion.

However, total group revenues rose 3.5 per cent to £3.4 billion, helped by an increase in sales from outside Europe.

Shares in the retailer fell by 11 per cent at one point before recovering slightly to stand seven per cent lower.

One of the main reasons for the drop in profits was a £85.4 million hit the retail giant took on the value of its stake in Debenhams.

Sports Direct began building up its stake in Debenhams in 2017. It currently holds a 29.7 per cent stake, just short of the 30 per cent threshold that would force it to make a takeover bid.

However, Debenhams is struggling, and has issued three profit warnings so far this year. The chain is undergoing a turnaround plan designed to cut costs and boost sales, but its chief executive, Sergio Bucher, has said the UK retail sector is facing “exceptionally difficult times”.

In the wake of the financial results, an angry Mr Ashley slammed Debenhams for ignoring his advice on how to make the business profitable. He said: “I will be smashing into them on why they cannot follow anything that Sports Direct suggests.”

In addition to its stake in Debenhams, Sports Direct also owns an 11 per cent stake in House of Fraser, which recently announced a major restructuring.

Sports Direct’s head of strategic investments Liam Rowley said “We hope House of Fraser will come out stronger from the restructure.”

But Mr Rowley also warned: “Retailers need to work together, otherwise Amazon is going to eat their lunch.”