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The boss of Frasers, known for its Sports Direct brand, said on Thursday that the appetite for luxury goods from aspirational shoppers would “come back strong” despite recent softness in the market, as the group said it expected to make higher annual profits.
Chief executive Michael Murray, who has been chief executive since 2022 and is married to Frasers owner Mike Ashley’s daughter, said the group was “very committed” to its premium offering.
He added the retailer was well placed to capitalise on trade in the medium to long term through its upmarket chain Flannels as luxury was cyclical. It also has stakes in luxury brands Mulberry and Hugo Boss.
The FTSE 100 company posted a 20.5 per cent fall in pre-tax profits to £507mn for the year to April 28, partly because of currency changes and a one-off boost from acquisitions last year. Revenue was down slightly to £5.5bn.
However, on an adjusted basis, its preferred metric, pre-tax profits increased 13.1 per cent to £544mn, at the top end of its guidance, and it said it expected to make between £575mn and £625mn this financial year. The news drove the shares up 10 per cent to 906p in early trading.
Growth in the luxury market has slowed over the past year as shoppers rein in spending following a pandemic boom, with mid-tier brands particularly hit.
Under Murray, Frasers — which also owns brands such as Jack Wills and Evans Cycles — has been seeking to modernise its stores and operations, and improve relationships with suppliers at Sports Direct, its main growth engine.
Retail revenue was down 1.3 per cent year on year, dragged down by sales declines at games retailer Game and ecommerce business Studio Retail as well as House of Fraser store closures and “a softer luxury market”.
Despite this, Murray said the group was “very resilient”, adding that the group had diversified “so that we can capitalise on opportunities, but also be more resilient in down times”.
Frasers has been snapping up shopping centres that predominantly have empty units. The group’s view is that it can install its own brands to drive footfall and eventually increase the value of these property assets.
Analysts at RBC Capital Markets said Frasers had a strong position in UK mass-market sports retailing as well as a long-term growth opportunity with Flannels but flagged that the group had “a lot of moving parts and it may be challenging to scale its luxury offer outside of regional cities in the UK”.
“Whilst we don’t expect a near-term inflection in trading momentum, we view Flannels as increasingly well positioned for when aspirational luxury consumer demand returns,” Deutsche Numis added on Thursday.
