JUST a week ago, Mike Ashley was basking in sizzling sunshine on the beach in
Marbella, knocking back lagers and lime. He mingled with 200 guests at a
party to celebrate the 40th birthday of Gadget shop founder Chris Gorman,
then headed back to Britain on Sunday night.
But when the billionaire sportswear tycoon touched down at Luton airport, he
didn’t expect that only 36 hours later he would be facing heat of a very
different kind.
His company, Sports Direct, owner of the Lillywhites store in London’s
Piccadilly and brands such as Dunlop, Slazenger, Kangol and Lonsdale, issued
a profit warning last Tuesday that wiped 22% off its stock-market value in a
day. The shares have more than halved in value since the firm floated in
February and Ashley and his board have disappointed analysts with their
reluctance to engage with the City.
Investors who backed the £2.2 billion flotation only five months ago have
started baying for blood. Ashley received a mauling in the following day’s
newspapers.
On Wednesday evening, as he sat in the bar of the Four Seasons hotel on
London’s Park Lane dressed in a casual shirt and ripped jeans, he was more
determined than ever to rebuild his reputation and redouble efforts to turn
Sports Direct into the world’s biggest and most profitable sports retailer.
“I’ve got balls of steel,” said Ashley. “Some investors have been great and
have been very supportive. But some of these City people act like a bunch of
cry babies. I’m not giving in. I think the shareholders will divide into two
distinct camps. I want a loyal band of followers – long-term shareholders
who aren’t on the phone every five minutes just because there’s a
share-price movement up or down. Sports Direct should come with a government
health warning – this stock is not for the fainthearted.”
It has taken Ashley more than two decades to build Sports Direct, so he finds
the City’s short-term outlook dispiriting.
“I am building a long-term business,” he said. “I can’t spend all my time
worrying if the share price goes up and down. It may drop to 80p, but over
three years I am betting it will be nearer 800p. I have built the company
over 25 years and I am planning the next 25 years. But all anyone wants to
talk to me about is what happened in June.”
The criticism has come thick and fast over the past few days. It would be easy
to forget that Sports Direct’s 2007 numbers were in line with City forecasts
and the business delivered a 31.8% increase in earnings before interest,
tax, depreciation and amortisation to £191m for the year to the end of April.
Instead analysts focused on the failure to release like-for-like trading
numbers. Ashley insists like-for-like sale figures make no sense in sports
retailing.
“Every other year there is a big football tournament, so you are always
comparing a tournament year with a nontournament year. We have always said
that we wouldn’t give the figures, but then people turn around and act
surprised when we don’t.”
His unconventional style has come under fire, notably after it emerged that
Ashley settled a row over fees by playing a game of spoof, the coin guessing
game, with Simon Mackenzie-Smith, head of UK investment banking at Merrill
Lynch.
“What do I regret about it? I should have said ‘three’,” Ashley quips. (Ashley
guessed two and lost the game.)
Ashley, whose favourite song is Wild Boys by Duran Duran, courted further
controversy by personally amassing a 3.14% stake in Adidas just weeks after
the Sports Direct float. He admits he made a mistake but insists he
subsequently offered the stake to the company at cost price but the deal was
blocked by the board.
“It was showing a €50m (£34m) paper profit. I even guaranteed to take it back
at the price paid if it fell in value,” he said. “Not taking it was the
worst decision, in my opinion, in 25 years of the company.”
Then, at the end of last week Sports Direct splashed out £48m of company money
to buy a 1% stake in Adidas, one of Sports Direct’s biggest suppliers – a
move that provoked further howls in the City.
Another controversial deal has been Ashley’s personal acquisition of Newcastle
United Football Club. Where Ashley does show contrition is over the poor
communication with the City. Only weeks after the float he sacked his
public-relations adviser, Tulchan. He then fell out with David Richardson,
his nonexecutive chairman, who quit in frustration at the way Ashley
regularly flouted corporate-govern-ance guidelines.
He regrets certain parts of Sports Direct’s stock-market debut – most notably
not having an investor-relations executive in place before the float.
He is set to hire one soon and find a full-time chairman to help guide the
business through its ambitious expansion plans.
Even though the company has halved in value, Ashley said he had no plans to
take it private.
“The float has actually put Sports Direct back in some ways, but I see it as
two paces forward and one pace back.
“The current share price is pathetic. I can’t think of many safer long-term
investments at this price. What annoys me the most is that some people are
saying they didn’t get what they bargained for. In my opinion they got
exactly what it said on the tin.”
THE STORY of Ashley’s rise is an extraordinary one. He was only 16 years old
when his parents, Keith and Barbara, mortgaged their bungalow and gave him
£10,000 to buy the lease and stock of a sports store in Maidenhead,
Berkshire, which he renamed Mike Ashley Sports.
His father was a production manager at Young’s Seafoods and his mum was a
secretary, but this tightly-knit family put their backs into making the shop
a success. Ashley’s dad did the books at the weekend and his mum often
helped out in store.
There remains a family involvement – Ashley’s elder brother John is the
Sports Direct IT manager. “He’s very academic – he’s an IT
genius, genuinely. He’s like super-bright – the opposite of me. I
call him Albert, after Einstein, because he is so brainy. I’m streetwise –
he’s not streetwise – we complement each other,” said Ashley.
Bob Mellors, the finance director, nicknamed the Captain, has also been with
Ashley since the start. The company’s board is a close-knit team and they
often socialise with each other. “Some of our best nights out are impromptu –
a few beers and then down the kebab shop. We still tell the same old
stories, like the time I fell down the fire escape in the Maidenhead store
and we still laugh and think it’s funny.”
Ashley was born in Walsall, but grew up in Burnham, near Slough. Never very
academic, he left school with only one O-level, a C in economics and public
affairs. He is not even sure if that is correct – maybe he got the C in
the mock exam, he laughs.
One thing he did excel at was squash. He became a county coach but that ended
when he began working at the sports shop full-time.
With the help of his parents, who showed unstinting support for their youngest
son, he helped to build the store into Britain’s biggest sportswear
retailer. By entrepreneurial flair and determination, he built a business
with sales of more than £1 billion.
Ashley, nicknamed the Young Emperor by billionaire retail magnate Sir Philip
Green, transformed sports retailing, buying brands such as Donnay, Lonsdale,
Slazenger and Karrimor, and turning them, in effect, into his chain’s own
labels. He has also bought up rival firms, including Hargreaves and
Gilesports.
Sales and profits rose in a scarcely faltering upward trajectory. The success
culminated in Sports Direct’s £2.2 billion flotation at the end of February.
Ashley has built a giant distribution centre in the unlikely outpost of
Shirebrook, a former Derbyshire pit village.
Using his muscle as the biggest sportswear retailer in Britain, Ashley sources
his stock cheaply direct from the Far East. He uses those cost savings to
slash the prices of big brands such as Adidas or Nike. Once the customers
are instore, the hope is that they will also buy some of the brands he owns.
Bit by bit, Ashley, who jets around in a company helicopter, is adding new
brands – in the past few weeks alone snapping up Field & Trek and
Everlast, the American maker of boxing equipment, and entering talks to buy
Evans Cycles.
“We describe the plan as like a jigsaw or a mosaic. First of all we need to
get all the pieces together. And it takes an awful lot of pieces to become
the world’s biggest sportswear retailer.
“It’s a bit like I was a good squash player in Slough . . . but was I any good
nationally? I was not really in their league. It’s a good analogy. Getting
to be No 1 in the UK is one thing, but getting to be No 1 in the world is on
a totally different scale.”
ASHLEY pocketed more than £929m from the Sports Direct float but he retains a
57% stake in the listed company and remains as down-to-earth now as the day
he started in business, according to friends.
Ashley insists he hasn’t been on a big spending spree since the float. “You
have to remember that I wasn’t exactly skint beforehand. You can do exactly
the same with £100m or £1 billion. I’m not being funny but you struggle to
spend the interest on £1 billion.
“I bought myself a red Ferrari for my 40th birthday and I go to fabulous
places and I don’t have to worry about what they cost. I go to Sandy Lane or
to Mauritius, but I first went there when I was 18.”
Family remains critical to Ashley. He has three children – Oliver, 17,
Anna, 15, and Matilda, 10 – from his marriage to Linda, which ended in
2003 with a £50m divorce settlement.
He has no plans to remarry at the moment. “I can afford many things but
getting married isn’t one of them and I’m talking from experience,” he jokes.
“My two loves are my business and my kids.” His children spend most weekends
at his home in Totteridge, north London, which was once the residence of the
record producer Mickie Most.
This summer, as every year, he will spend three weeks with the children in
California.
When Ashley isn’t working or with his family, he is out partying or gambling
with his best friend Paul Kemsley, the Tottenham Hotspur director and
property entrepreneur. The pair regularly spend nights at the Fifty club in
St James’s.
“Many of the most successful people I know are gamblers,” he said. “My view is
that when you get up on Monday morning you are in the risk business. But
there is a fine line between an entrepreneurial investor and a gambler.”
“People say: how do you play poker? My answer is ‘all in’ –
I’ve always been the same.”
By his own admission Ashley is consumed by a “ferocious” desire to succeed. He
believes that one day Sports Direct could be a £4 billion company.
His blueprint for the future is clear – Sports Direct will need to expand
into mainland Europe, take 100% ownership of more brands and acquire large
strategic stakes in others. Will the plan for global domination succeed?
“My view is that if we fail we will still achieve a lot more than we would
have if we didn’t try. I have spent most of my life attempting the
impossible and missing, but achieving the nearly impossible.”
WHAT THE CITY SAID ABOUT SPORTS DIRECT
There is an ongoing and possibly substantial risk to [earnings] estimates. Mal
Patel, retail analyst at Sports Direct’s house broker, Merrill Lynch
It is now questionable if this company is investment grade and it appears that
there are no internal controls in place, making it nigh on impossible to
generate an earnings model, let alone a forecast. Jonathan Pritchard, Oriel
Securities Given the lack of hard data from Sports Direct, even forecasting
for the current year is fraught with difficulties and uncertainties and,with
the outlook for the consumer looking tougher and tougher, any estimate past
this is little more than a ‘finger in the air job’. Andy
Wade, Seymour Pierce
[The Adidas stake] is so bizarre that you almost couldn’t make it up and it
will pour more fuel on the fire of the company’s tense relationship with the
City. Nick Bubb, analyst at Pali international
It is the only retailer on the planet that thinks like-for-like [sales] is not
a meaningful sum. Jonathan Pritchard, Oriel Securities
Sports Direct are poor performing, choatic company who are still run as a back street shop pretending to be a plc, their time is nearly at an end.
Gedge, Shirebrook,
Yeah totally!
Mike Ashley is a total legend.
Its like a modern day Napoleon!
Andy, High Wycombe,
if these 'analysts' were so clever why have they not made any money in business themselves?
This is a good example of a company that has long term growth ambitions not being able to develop a relationship with analysts who cannot see beyond their next bonus cheque.
Roy, London, England