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Sports Direct and Ocado to update on trading amid sterling fall and price war


Sports Direct is forecast to take a large hit when it reports half year results

Sports Direct is forecast to take a large hit when it reports half year results

Sports Direct is forecast to take a large hit when it reports half year results

Scandal-hit retailer Sports Direct and online grocer Ocado are set to update the City on trading this week as the fall in sterling and the supermarket price war continue to dominate.

Mike Ashley's Sports Direct is expected to lay bare the impact of the fall in the value of the pound when it reports half year results next week, with the retailer forecast to take a significant hit.

The group, which has endured a long list of controversies over the past months, compounded its PR problems by failing to hedge against the fall in sterling in the immediate aftermath of the referendum.

A subsequent attempt at hedging turned sour when in October Sports Direct said that "extreme movements" in the pound will result in lower full year profits following a flash crash in sterling's value.

The company said that full year earnings are expected to come in at £285 million, compared with the £300 million it had originally pencilled in.

Andrew Wade, analyst at Numis, said there was limited scope for a profit recovery, also because of "trading underperformance".

He said: "Wary of the extent to which Sports Direct is being required to change commercially as the major brands demand a better showcase, and notwithstanding some potential gross margin upside in full year 2018 for the business as the brands re-price ranges following recent sterling weakness, we see limited scope for a material profit recovery in the next few years and retain our neutral stance."

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The results will come after a string of controversies for the firm which has seen billionaire Mr Ashley hauled before MPs to be grilled over working conditions, the company host a tumultuous "open day" at its headquarters and its chief executive Dave Forsey quit - only to be replaced by Mr Ashley.

Last month, the Financial Reporting Council announced that it is investigating Sports Direct over the retailer's relationship to a firm owned by the tycoon's brother.

The probe comes after it emerged in August that Sports Direct's accounts fail to disclose that international deliveries are run by Mr Ashley's brother, John.

In yet another controversy, in November Sports Direct bosses insisted they had no knowledge of an undercover recording device which a group of MPs said they found during an unannounced visit to the firm's controversial Derbyshire warehouse.

Online grocer Ocado will update the market on trading in its fourth quarter next week amid a backdrop of a supermarket price war the looming threat of AmazonFresh.

City analysts expect another solid period following its third quarter, which saw a 15.4% rise in gross sales to £314 million, with retail sales up 13.6% at £286.4 million.

Andrew Wade, analyst at Numis, said: "Looking ahead to the fourth quarter, we expect similar trends to play out, with strong order growth but basket size continuing to decline, and look for retail sales growth of plus-13%."

In a sign of the toll taken by the ongoing price war, Ocado revealed in September that its average order size was down 3.4% at £107.94.

The price war, sparked by the rise of German duo Aldi and Lidl, has engulfed the sector and has seen all of the so-called Big Four supermarkets - Tesco, Sainsbury's, Asda and Morrisons - come under pressure.

Ocado has not been immune, and chief executive Tim Steiner cautioned over the group's profit margins in the last trading update.

Mr Steiner said: "As the market remains very competitive, we are seeing sustained and continuing margin pressure and there is nothing to suggest that this will change in the short term."

The group is also facing pressure from the recent launch of Amazon's rival fresh food service.

Ocado's shares plunged to a three-year low in June after the arrival of AmazonFresh, although the stock has since recovered.

But Mr Wade added: "There seemed to have been no noticeable impact from the nascent Amazon Fresh operation, something we believe has continued to be the case."

The City is still awaiting details of an international deal for Ocado. The group had originally said it hoped to strike a deal by the end of last year.