Sterling move forces Sports Direct to scrap profit forecasts

Sports Direct International found itself exposed to sterling's sudden drop as losses on the UK sporting-goods retailer's currency hedge forced it to scrap the profit forecast issued just a month ago. The shares fell as much as 13 per cent.

“Extreme movements overnight” in the sterling-dollar rate mean the company’s underlying earnings before interest, tax, depreciation and amortisation will be cut by about £15 million (€16.7m), the company said in a statement on Friday.

Should the rate remain at $1.20 on average for the rest of the fiscal year, adjusted profit will be hurt by another £20 million, Sports Direct said.

The company entered the hedging arrangement only recently as it said on July 7th that it was not insulated against declines in sterling.

Hedging review

The retailer, which had seen adjusted profit of about £300 million in this fiscal year to April, said on September 7th that it was reviewing its hedging policy.

The reduced profit forecast is the visible first aftershock among UK companies of the plunge in the currency in Friday’s Asian trading.

Sterling sank the most since the Brexit vote, with traders saying computer-initiated sell orders exacerbated the slump.

The reduced guidance from Sports Direct comes just two weeks after founder Mike Ashley took the helm at the troubled retailer, which is reeling from accusations of slack governance and unfair labour practices.

The shares were down 11 per cent to 268.50 pence as traders left their desks in London, and have lost more than half their value this year. –

Bloomberg