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The Guardian - UK
The Guardian - UK
Business
Sarah Butler

Mike Ashley’s Frasers Group plans more stores as profits soar

Sports Direct store at Wrekin retail tark in Telford
Frasers Group plans to have fewer but larger Sports Direct outlets. Photograph: Nick Potts/PA

Mike Ashley’s Frasers Group, the owner of Sports Direct and Jack Wills, plans more acquisitions and store openings after sales rose by almost a third and profits bounced back following the end of high street lockdowns.

Pre-tax profits for the company, which also owns House of Fraser, Flannels, Game and Evans Cycles, and recently bought the online specialists Missguided and Studio Retail, increased to £366m in the year to 24 April from just £8.5m a year before, as sales rose almost 31% to £4.7bn. Investors reacted positively, with the company’s share price closing up 25% at 942p.

Frasers’ new chief executive, Michael Murray, said shoppers had defied expectations that sales had permanently shifted online during the pandemic. The group’s profit rise came despite booking £227m of property impairments as store values declined in the light of fears about the industry’s future.

Murray said: “We have definitely seen a shift back to the high street. People are coming to experience a diverse brand mix.”

He said shoppers were likely to see prices go up in stores as brands reacted to cost increases while the price of fitting out stores had become more expensive because of construction cost increases.

However, the group issued a bullish profits target, saying it believed it could make between £450m and £500m before tax in the year ahead, which would be at least a 23% rise.

Murray said his strategy had got “significant momentum” despite cost inflation and supply chain challenges and the group’s exit from its failed investment in Bob’s Stores and Eastern Mountain Sports in the US after the year end.

“We are confident of a record year and that has got the headwinds baked in,” he said.

The group said it planned to open its first Flannels stores in Ireland – in Dublin, Blanchardstown and Cork – and a flagship Sports Direct in Manchester in the year ahead.

Murray said in the longer term the group was aiming to almost double the size of the Flannels chain to 100 stores across the UK and Ireland. It also wants to open stores in mainland European cities.

The group will aim to have fewer but larger Sports Direct outlets, after closing a net 12 during the year, which could offer a “better experience” for shoppers.

House of Fraser will continue to contract, however. Four more department stores closed during the year taking the total to 39 in April, compared with 59 when the chain was first acquired by Ashley’s retail group in 2018.

Murray said longer term he wanted only 20 to 30 House of Fraser outlets, which would include some new stores and the closure of others. House of Frasers in Cwmbran, Wales, and Epsom in Surrey have closed since the year end and Huddersfield will close next month.

“Some of the stores in smaller locations are too big, rates are very high or store sales are not [sufficiently] productive to invest in the store or we cannot come to a reasonable compromise on rents,” Murray said.

The company said in a statement: “We have consistently criticised the archaic business rates regime and the need for reform. Unfortunately, these issues remain unaddressed and are now coupled with soaring construction and store fit-out costs, making for an extremely challenging environment to open and operate physical stores. While others have shied away from committing to physical retail in these difficult times, we are convinced that consumers will still flock to stores for great brands and experiences.”

Laura Hoy, an equity analyst at Hargreaves Lansdown, said: “It is difficult to map out how much of the rosy results came from easier comparisons as the group was lapping extraordinary weakness from Covid lockdowns. But there were some promising signs including efficiency improvements and the expansion of higher-margin parts of the business.

“Only time will tell whether Murray’s optimism is grounded in reality – we question whether [linked online and store] experiences are enough to lure shoppers back into stores. And Frasers’ stable of brands is at risk of being squeezed by the cost of living crisis.”

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