Overview: false start

A four paragraph trading update issued by Sports Direct last week sent
investors into a tailspin. The company said growth in the main UK business was
‘lower than earlier in the year, but remains positive’.

Investors have focused on the first part of that sentence and taken it as a
profit warning, while reiterating their concerns that Sports Direct has no
broker, an external financial PR to be appointed some time this month and a low
profile finance director, Bob Mellors.

What happened?

The group, which owns the Sportsworld brands and the famous Lillywhites site
in Piccadilly, has courted controversy since listing on the main market two
months ago.

Its listing was strong, with shares priced at the top end of expectations,
which netted founder and majority shareholder Mike Ashley a cool £900m.

However, the city was unimpressed with a delayed retail analysts meeting
prior to the launch, and reports that Mellors has not attended some subsequent
meetings.

Corporate governance issues have been flagged up by the City and media over
the company board structure, which includes Ashley in the unusual role of unpaid
executive deputy chairman.

The only accounting-qualified director at the company quoted in recent weeks
has been chairman David Richardson, a former group FD of Whitbread.

What’s going to happen?

The next few weeks could see much change at the embattled sports giant.

Ominously for Mellors, reports have suggested he is not the man to serve as
FD of a publicly quoted company, and that a headhunter was hired at the
beginning of April to find his replacement.

The Blackwood Group is reportedly leading a search for a replacement for
Mellors who will communicate with the City.

But it is expected that Mellors, who has served at the company for four
years, will stay on in another financial role. His input into Sports Direct’s
prelims announcement for 27 July will be keenly watched, if he’s still top dog.