House of Fraser costs add up for Sports Direct after £90m takeover

Mike Ashley criticised previous management and said 'significant challenges' lay ahead for House of Fraser

House of Fraser lost £31.5m in the first 11 weeks after the department store was bought out of administration by Sports Direct, a trading update has revealed.

Mike Ashley’s discount retailer increased revenue by 4.5 per cent, to £1.79bn from £1.72bn, in the first half of the financial year, while underlying profits fell by 27 per cent.

The company said its earnings before income, taxation, depreciation and amortisation (Ebitda) rose 15.5 per cent to £180.3m excluding the effects of the House of Fraser purchase.

However, when the acquisition was included, this figure fell 4.7 per cent, from £156.1m to £148.8m.

Mr Ashley has previously said he hopes to save the majority of House of Fraser stores, and has blamed ‘greedy landlords’ for blocking his attempts to negotiate lower rents in order to keep branches open.

On Thursday, he 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.”

Mr Ashley recently told MPs on the Housing, Communities and Local Government committee that most UK high streets are beyond help, and called for a tax on online retailers.

When the committee asked him whether he could keep all of the House of Fraser branches open, Mr Ashley replied: “What person could keep 59 stores open – beside God? It’s impossible, it can’t be done.”

Emma-Lou Montgomery, associate director at Fidelity International, said: “Replica football strips and cut-price trainers have helped Sport Direct buck the downward trend on the high street, with sales up 4 per cent over the period. However, its quest to turn the House of Fraser stores it’s acquired into the “Harrods of the high street” comes at a cost.

“As a result, full-year earnings growth is expected to come in lower than last year. Whether investors will be able to look past the headline figures and see Sports Direct as a true diamond in the rough remains to be seen.”

Sports Direct shares dipped by 1 per cent in early trading.