Frasers shares dive as FY profit outlook cut on Budget, weak trade
By Frank Prenesti
Date: Thursday 05 Dec 2024
(Sharecast News) - Shares in Frasers Group nosedived as the UK sportswear and fashion retailer lowered full-year profit forecasts, citing weaker consumer confidence leading up to and after the government's recent Budget and a tougher trading environment.
The Sports Direct owner now expects adjusted pre-tax profit for the 2024/25 fiscal year of £550m-600m compared to prior guidance of £575m-625m. Interim profits were down 1.5% to £299.1m on the same basis. Shares in the company slumped 13% in London trade.
Revenue fell to £2.49bn from £2.7bn in the six months to October 27.
Frasers, which is controlled by majority shareholder and founder Mike Ashley, said recent Budget measures including a rise in the minimum wage and employer national insurance contributions (NIC), would cost an extra £50m for the full-year.
"We are working hard to mitigate these in order to maintain our profitable growth ambitions," the company, which also owns the Flannels, Jack Wills, House of Fraser and Gieves and Hawkes brands said.
In the group's UK sports segment, which makes up 54% of total group revenue, revenue decreased by 7.6% to £1.37bn while operating profits dropped to £190m from £226.8m.
Continued sales growth from Sports Direct reflected ongoing success of Frasers 'Elevation Strategy' to move upmarket and strengthening brand relationships, but this was more than offset by planned declines in Game UK, Studio Retail and Sportsmaster in Denmark, while a "challenging luxury market" also dragged on sales.
Frasers said it was now "right-sizing" those previously unprofitable firms to put them on a more sustainable footing.
Analysts at Jefferies maintained a 'buy' rating on the stock, even as they lowered full-year adjusted profits forecasts by 5% -10%, saying we are "encouraged by the group's strong strategic progress, particularly overseas".
"Reflecting the lower FY25 guidance and recognition of NIC/National Living Wage headwinds in full-year 2026, we reduce our profit estimates, with both years seeing a c.10% cut at the earnings before interest and tax level," they wrote.
"Despite the near-term headwinds, we continue to view Frasers as an undervalued asset, with a significant medium term growth opportunity."
Reporting by Frank Prenesti for Sharecast.com
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