Compare and contrast. One of the UK’s sporting goods retailers, Sports Direct, seems to want to act as undertaker to the UK’s department store sector. The other big player, JD Sports, is following a simpler plan to sell expensive branded trainers and “athleisure” garments to more people in more places. There are no prizes for guessing which strategy is working better. Sports Direct’s shares have more than halved in the past five years while JD’s have roughly quadrupled.
The gap became a little wider on Monday as JD’s share price improved 6% after the firm reported a decent Christmas and said expansion in the US, via last year’s £400m purchase of the Finish Line chain, is running to plan. It’s a mystery (to some of us) how a pair of Nike or Adidas trainers can cost £150-plus, but there’s no doubting JD’s ability to shift stock at that price. The group predicted full-year profits would arrive at the upper end of City forecasts, meaning a figure close to £350m.
There’s no point complaining that Sports Direct’s offer to customers should be more like JD’s. Ashley’s crew will always struggle to replicate JD’s close relationships with the two big sportswear brands. Yet JD also stands as an excellent advertisement for sticking to what you do best and avoiding wild excursions.
Put another way, it remains hard to understand why Ashley ever thought department stores were a prize worth pursuing. The purchase of House of Fraser out of administration last year came with “significant challenges”, even on Ashley’s reckoning, but the obsession with Debenhams is in another league entirely. Sports Direct is down by about £100m so far on an investment that started five years ago. What a waste of money, and what a waste of Ashley’s time.
Maybe, in about half a decade’s time, he’ll defy the doubters and emerge with something resembling a profit from his HoF-Debs punts. But there will still be a cost in terms of opportunities lost in the core business. The £100m whack from Debs can be filed as an investment loss but it is also money that could have been spent trying to grab marginal trade from the main UK competitor. JD is an efficient operator, City analysts seem to agree, but it also got lucky in having a rival as quixotic as Ashley.
Boris Johnson knows no-deal would expose car industry
Tariff-free and frictionless trade with the EU is “fundamental to the competitiveness of the UK automotive sector”. That is not Ralf Speth, chief executive of Jaguar Land Rover (JLR), speaking. It is the government’s industrial strategy document last year, something Boris Johnson would do well to remember the next time he tries to claim he knows more about car manufacturing than the people who make cars.
On inspection, Johnson’s claim of superior wisdom amounted to little more than his own greater enthusiasm for electric vehicles in a conversation with Speth six years ago. One would like to hear the JLR boss’s account of the exchange but, even if Johnson’s recollection is accurate, it’s a thin base from which to rubbish carmakers’ warnings about the costs to them of a no-deal Brexit.
The mass-market car industry, with its extreme reliance of just-in-time delivery networks, really is uniquely exposed. In aerospace, contracts are higher value and the pace of construction is slower. Modern carmaking in the UK, by contrast, has grown up with the customs union and EU single market. If, like JLR, you have 1,000 lorry deliveries a day to your Solihull plant, you are bound to worry about log jams at ports and frictional costs.
One can quibble with Speth’s past estimate that JLR would expericence a £1.2bn loss in profits, mainly from tariffs, under a hard Brexit. The actual figure would depend on many things, including the level of sterling and JLR’s own ability to adapt. But the broad point that a no-deal Brexit would be a severe blow for mass-market carmakers in the UK should not be controversial. For Johnson to counter with an anecdote about electric vehicles is absurd.
New Look needs all the luck with its financial refurb
Good luck to New Look, which is hitting its bondholders with a severe (and inevitable) debt-for-equity swap. At first glance, the financial rejig looks radical. Long-term debt for the privately owned fashion retailer will be cut from £1.35bn to £350m, which certainly counts as material. On second glance, though, you have to wonder whether the repair job went far enough.
New Look reckons it will make top-line earnings, before interest payments, of £84m this year in its core business. So debt, even at the much-reduced level, will still represent four times earnings. For a struggling retailer in a rough market, that ratio would normally count as punchy.