Written by: Keith Tully
Reviewed: Monday 29th July, 2019
The retail group Sports Direct has seen its share price plunge after it was revealed to have received a huge tax bill from authorities in Belgium.
In addition to receiving that £605 million tax bill, the retailer has struggled to make a positive out of its decision to rescue the department store chain House of Fraser, which it acquired out of administration for £90 million in August 2018.
Indeed, Mike Ashley, Sports Direct’s chief executive, has described problems within House of Fraser’s operations as being “nothing short of terminal in nature”.
“Serious under investment in stores and appropriate support services, excessive and unsustainable outsourcing and financing, and selling brands to their Chinese parent shortly before administration are just some of the many problems faced,” Mr Ashley said in a series of official statements.
He went on to say that some House of Fraser stores are still unprofitable despite being operated on a rent-free basis.
“Unfortunately, this is not sustainable,” Mr Ashley said. “We are continuing to review the longer-term portfolio and would expect the number of retained stores to reduce in the next 12 months.”
Underlining his disappointment with the way that Sports Direct’s recent purchase worked out, the group’s chief executive added that if he were to rate the business “on a scale out of 5, with 1 being very bad and 5 being very good, House of Fraser is a 1”.
Mr Ashley also expressed his unhappiness at the handling of a process that saw another department store chain, Debenhams, enter administration and pass to the control of its lenders in April this year.
Sports Direct had been a major shareholder in Debenhams prior to its entry into administration and carried out an attempt to acquire the business and make Mr Ashley its new chief executive.
Debenhams’ entry into administration resulted in the loss of significant investments made by Sports Direct into the business.
“We made numerous offers, and took various actions, to assist Debenhams and to avert what we regarded, and still regard, as its unnecessary insolvency and the total destruction of shareholder value,” Sports Direct said in its latest financial report.