July 29 2019 @ 9:15 by Steven Hugill
Newcastle United owner Mike Ashley has admitted regrets over taking on House of Fraser after revealing more stores will close in a bid to wrestle it from a “terminal” decline.
The businessman, whose Sports Direct empire last year spent £90 million to rescue the ailing operator, has warned cuts are likely with many shops unprofitable and unsustainable.
Mr Ashley also said House of Fraser is, at present, a “very bad” business, which has suffered from “serious underinvestment”, adding its agonies were amplified by a culture among its former management team that “exemplified city greed and excess.”
In a wide-ranging market update, Mr Ashley also warned his Sports Direct venture faces a €674 million (£605 million) tax bill from Belgian authorities – linked in part to the way its goods are moved throughout the EU and taxed in Belgium – and called on MPs to overhaul the “antiquated rates system” to help struggling retailers.
Referring to its deal to salvage House of Fraser from administration, Mr Ashley said the operator had potential, but cautioned it would take time to reverse its woes, adding stores will likely close to ease its turnaround.
He said: “The High Street is undergoing some significant changes, not helped by the uncertainty the population is experiencing in relation to Brexit, the current political upheaval, and the wider economic outlook.
“We are excited by the opportunities ahead but also cautious as we realise that shaping House of Fraser into what we want it to be after years of under-investment and poor management will take time.
“As we have continued to look under the bonnet, we have found the problems are nothing short of terminal in nature.
“On a scale out of five, with one being very bad and five being very good, House of Fraser is a one.
“We are trying very hard to turn the business around (but) this will not be quick and will not be easy.
“Even though we do believe there could be a bright future for House of Fraser, and indeed have publicised our Frasers vision which we are very excited about, if we had the gift of hindsight, we might have made a different decision in August 2018.
“We have done as much as we could realistically do to save as many jobs and stores as possible, and indeed we appreciate many landlords and local authorities have worked hand-in-hand with us as we tried to do this.
“However, there are still a number of stores which are currently paying zero rent and that are still unprofitable and unfortunately this is not sustainable.
“We are continuing to review the longer-term portfolio and would expect the number of retained stores to reduce in the next 12 months.”
Referring to Sports Direct’s performance for the year to April 28, Mr Ashley revealed group underlying earnings before interest, tax, depreciation and amortisation (EBITDA) fell six per cent to £287.8 million.
However, excluding House of Fraser, underlying EBITDA grew 10.9 per cent to £339.4 million. Total full-year sales increased 10.2 per cent to £3.7 billion.
Mr Ashley also revealed Sports Direct will pay £2 million for advertising rights at Newcastle United for the upcoming football season, which he said Sports Direct “still considers to be value for its shareholders.”