Sports Direct issues profit warning after losing £15m in sterling slump

Sports Direct said its bet to protect itself against a slump in sterling had gone wrong and would reduce full-year profits. Photograph: Carl Court/Getty Images

Sports Direct has issued a further profit warning after the overnight “flash crash” in the value of sterling caused the company to lose £15m in the currency markets.

In a statement to the stock exchange on Friday, the company said a bet designed to protect itself against a slump in sterling had gone wrong and would reduce full-year profits. The group’s shares slumped by 9.1%.

In the past year Sports Direct has been hit by a scandal over its treatment of workers and a series of earnings downgrades, which have been blamed on tough trading conditions.

Immediately after the EU referendum result in June, the company said the fall in the pound against the dollar was “likely to impact purchases for which the company is currently not hedged for the [full financial year] and beyond”.

However, a subsequent move to hedge the group against a fall in the value of sterling, seems to have gone wrong.

Sports Direct said on Friday: “Extreme movements [in the currency markets] overnight resulted in a crystallisation of [the hedge] rate at 1.19, resulting in a negative impact of approximately £15m on the company’s [full-year] underlying [earnings] expectation.”

It added: “If the GBP/USD rate is 1.20 on average for the remainder of [the financial year], then the negative impact on the company’s underlying expectation would be in the order of a further £20m.”

The company is adversely affected by a drop in the value of the pound against the dollar, as it needs to acquire US currency in order to buy stock in Asia.

The latest embarrassment will pile further pressure on the company to hire a permanent finance director. Matt Pearson has been the acting chief financial officer since the summer of 2015. Sports Direct has been without a permanent finance director since Bob Mellors stood down on health grounds in late 2013.

Pearson could not be contacted and company spokespeople did not return calls.

Sports Direct shares closed down 9% at 273p.

Analysts at the investment bank Liberum slashed its price target on the shares to 310p from 380p and they said that the impact could continue for two years. “[We] have modelled this impact [of falling sterling] for 2018 and 2019 as well,” Liberum said. It predicted that earnings per share might fall by 20%-23% over the next three years.