Sports Direct counts cost of House of Fraser rescue

Sports Direct has reported a 27% fall in half-year profits as it counted the cost of swallowing up failed department store chain House of Fraser.

The retailer, controlled by tycoon Mike Ashley, said House of Fraser had notched up a loss of £31.5m since it was acquired in August for £90m.

The group also injected £70m into the department store's supply chain and Mr Ashley admitted that he faced "significant challenges" turning around its fortunes. Shares (Berlin: DI6.BE - news) fell 9%.

Sports Direct reported underlying pre-tax profits of £64.4m for the six months to 28 October, down from £88m a year ago.

Mr Ashley said that, stripping out House of Fraser, the group was on course to grow full-year earnings in line with target but that including the department store chain it was set to be behind last year's result.

The Sports Direct chief executive said: "I have made my views clear that I believe the previous House of Fraser senior management team traded the business whilst it was insolvent for a long time.

"This means we have significant challenges ahead in turning House of Fraser around.

"However, I genuinely believe we have acquired a fantastic opportunity and with the efforts of Sports Direct and House of Fraser teams, and the support of the brands, local councils and landlords, we can turn House of Fraser into the Harrods of the high street."

The company said that it had "spent the post acquisition period working with staff, suppliers, concessionaires and landlords to create a viable business".

Sports Direct bought 169-year-old House of Fraser out of administration in August and Mr Ashley said he aimed to keep 80% of its 59 stores open - though has since said that to do so would be a "godlike" feat.

It means that thousands of jobs remain in doubt as the billionaire tycoon seeks to persuade landlords to slash store rents so that he can keep them open.

Sports Direct has already said it is to shut four stores at shopping centres in Essex, Gateshead, Norwich and Nottingham after failed talks with their owner, the property group Intu (Swiss: OXIGTU.SW - news) .

Meanwhile suppliers, pensioners and customers have been left out of pocket as the administration process meant the business was picked up free of liabilities for its new owners.

Earlier this month, Mr Ashley told Sky News that House of Fraser could be merged or "should at least work very closely together" with rival Debenhams (Frankfurt: D2T.F - news) , a company in which Sports Direct owns a 30% stake.

But there was no mention of that suggestion in the latest statement.

Sports Direct, which also owns overseas operations and a range of other brands including "premium lifestyle" chain Flannels and cycling specialist Evans, still makes most of its revenues from its UK sports retail business.

Sales from this division were little changed at £1.12bn with in-store purchases lower partly "due to the pressure on the high street" while web sales were higher.

Mr Ashley recently told MPs (BSE: MPSLTD.BO - news) that the traditional high street faced extinction in the face of competition from internet retail, unless radical action was taken to save it - and in a recent, combative committee hearing, he warned: "I'm not Father Christmas."

He said the latest half-year performance was "impressive in the context of the current struggles in the high street".

Chairman David Daly said there were "short-term challenges ahead, not least as a result of the current level of political uncertainty surrounding Brexit".