ALEX BRUMMER: Chaos in Mike Ashley’s empire as it transpires there was no master plan in place
Sports Direct has always been a corporate black box when it comes to financial reporting and governance.
That was tolerated when it was a relatively simple sports retail enterprise with an appetite for reviving faded brands such as Slazenger (still on parade at Wimbledon) and Everlast. But the picture is more complicated now.
The assumption was that Mike Ashley had some kind of master plan, with his enthusiasm for rescuing damaged goods – including Game Digital, Evans Cycles and, most spectacularly, House Of Fraser – from administrators.
Alex Brummer says that Sports Direct founder Mike Ashley placed a ‘huge bet on the High Street when the rest of the industry and markets were engaged in a big short’
Ashley placed a huge bet on the High Street when the rest of the industry and markets were engaged in a big short.
Judging from the market reaction to Sports Direct, all that the burly entrepreneur has added to his sprawling empire is chaos. Normally, the integration of an acquisition into a company’s accounts on a pro-forma basis is routine. But apparently not with the long-term white elephant House Of Fraser.
We may have to wait a little for the promised new Harrods of the High Street to emerge from its chrysalis. All there appears to be at present is a host of trouble.
Ashley’s most recent formal update to the stock market for the last financial year was eight months ago when he pledged that his most preferred measure of earnings performance would be up by 5 per cent to 15 per cent, excluding House Of Fraser.
All that we have heard since then is a more Ashley-like update in December that trading was ‘unbelievably bad’, which makes one wonder why he fought such a bare-knuckle fight for Debenhams. Face-saving over his equity investment in Debs became more important to him than knocking out sportswear at bargain-basement prices.
What is most perturbing is that the auditor being relied upon by investors to navigate their way through the accounting miasma is Grant Thornton. It is jolly good that Grant Thornton is a challenger to the big four, but investors might feel more comfortable if the track record were more stellar.
M&S chairman Archie Norman
Among its stunning successes were the audit of Patisserie Valerie, where tens of millions of pounds vanished, and Neil Woodford’s gated Equity Income fund. Small wonder Grant Thornton has been put under special measures to raise audit quality by the enforcer, the Financial Reporting Council. Given the known unknowns, the 9 per cent drop in Sports Direct looks too kind.
The comings and goings at M&S have been dizzying as chairman Archie Norman strives to inject some zest into the old dowager. Chief executive Stephen Rowe sought to rebuild the fashion offering with the help of Jill McDonald, a refugee from Halfords and McDonald’s UK.
Forget her lack of fashion experience. Having been hired for her marketing nous she reportedly struggled with keeping stores supplied, and like so many M&S departees leaves clutching a fat cheque. Norman has been keen to de-emphasise that M&S’s core womenswear offering is only for the older shopper, with talk that these consumers want to dress like their daughters and other such twaddle.
One of the answers it seems is to reach into Topshop and hire head of fashion Maddy Evans with the aim of appealing to younger consumers. Having risen through the Topshop ranks as buying director and, since May 2015, fashion director, it is thought that Evans must know her stuff.
Nevertheless, M&S might have noticed that she has been running fashion at precisely the period when Topshop struggled against online competition, Zara, H&M and others, and has been through the searing process of a CVA. Her genius with fashion doesn’t seem to have served Sir Philip Green’s empire that well. Long suffering M&S investors can live in hope.
Creative Britain has many unknown heroes. Among them is John Craig, founder of London-based indie label First Night Records. He showed the confidence to bring West End show Les Misérables to a broader audience when other producers failed to see the potential value 34 years ago.
Now First Night is being swallowed by US behemoth Warner Music Group and will become part of its fast-expanding Arts Music Division. The deal comes six years after Warner swallowed Parlophone, a collection of EMI assets that included artists Coldplay, Pink Floyd and the Beach Boys. So much for the UK treasuring its most prized assets.