Introduction
This study analyzes the financial performance of Sports Direct Company in the last three years (2013, 2014, and 2015). However, to determine the company performance, the paper will further conduct an internal and external analysis of the company. Some of the significant tools that are used in the analysis include profitability, asset efficiency and market ratios among other important attributes.
Sports Direct Plc is a UK based company that engages in the retail of sports and leisure clothing, footwear among other significant attributes like sports equipment. According to the 2015 annual report, it was noted that the firm’s revenues appreciated by 4.68% from the previous years’ figure (Morning Star, 2016). Furthermore, the company experienced significant improvement in the company’s profit by a margin of 34.27%, which was directed to various aspects. However, the company was not without competitors such as Auto Group PLC, Card Factory PLC, among others, as will be mentioned later in the study. Therefore, through the study, readers will be informed on the financial standing of the company and get recommendations on some of the suitable strategies to be employed to improve business performance.
Main Body
Sports Direct Plc revenue as mentioned earlier has received significant growth in revenue in the recent past. Based on recent analysis, an improvement of 23.8% has been experienced as the company experienced revenue of £2,706m and £2,185.6m in 2013 and 2014 respectively (Sports Direct, 2013). The improved revenue is attributed to the company’s core strategy that is an expansion of the product base. However, stakeholders are concerned that the business has not sought to use of price-cutting strategy.
Figure 1: Showing Established Revenue over a Six Year Period
Moreover, it is worth acknowledging that the company’s product mix is experiencing significant improvement as their products are gaining more acceptances in the market. However, of concern is that operating and net margins experienced are below average because of the new stores that have been opened.
According to Rutkowska (2015), the profitability ratios assist in asserting the firm’s overall performance and efficiency with regard to asset use. Therefore, the concept has a significant influence on the amount of profit that is generated by a firm whatsoever. Moreover, the return on capital employed (ROCE) as other major attributes assists in indicating how organizational resources are utilized. In the last three years, ROCE for Sports Direct Plc has experienced a downfall from 21.82% in 2013 to 21.25% in 2015 (Sports Direct, 2015). This, therefore, indicates that the firm has a shortcoming with regard to asset utilization. However, compared to the other companies in the industry, Sports Direct is understood to have a strong capital efficiency.
After accounting for the firm’s expenses and costs, Sports Direct was found to have a higher operating profit margin of 10.44%, which is higher than the figure obtained in 2013 and 2014 (Sports Direct, 2014). On the evaluation of the firm's gross profit, it was further evidenced that Sports Direct experienced an improved figure over the last three years from 0.95% in 2013 to the current 43.81% in 2015, which is a significant improvement in resource use (Sports Direct, 2015). The above indication is a proof that Sports Direct Plus has a strong, profitable rate and if well managed will experience success in the market. Besides, the profitability margin is higher than that suffered by the industry in general which is a good indication of the business. Figure two below shows how the company experienced an improvement in earnings per share with time.
Figure 2: Showing Earnings per share at Sports Direct Plc
Compared to competitors in the market, Sports Direct Plc has outperformed other companies in the sector based on the company’s profitability rate. This is due to improved sales experienced by the firm, especially with the introduction of the online platforms that gave the company a competitive edge in the market. However, in terms of ratio, the company experienced a reduced figure from 1.64 that was experienced in 2013 to 1.06 experienced in 2014 (Morning Star, 2016). It is worth appreciating that the weak ratio indicates that Sports Direct Plc will not be in a position to accomplish its obligation in the near future. However, there are many aspects that are associated with the weak liquidity, which includes opening of new stores and the high turnover experienced in the company.
Compared to other competitors in the market such as JD Sports Fashion Plc, the business has a lower gearing ratio. The figure indicates that company is associated with many risks, hence if not managed, will lower its profitability rate. Some of the factors that have contributed to the above position include leaning towards the leasing of assets and overdependence on overdraft facilities. However, compared to competitors, Sport Direct has more capital, hence able to support future expansion of the business. Despite a fall in interest cover at Sports Direct, it is worth appreciating that the ratio is still healthy, which is an indication that the company can still meet its debt obligation.
With efficiency ratio, concerned stakeholders can adequately determine the effectiveness of the company’s management. This is because the concept helps in determining the ability of the management to reduce the working capital required for each activity. In 2013, the payables payment period was fixed at 48 days and one year later, and the time was pushed further to 56 days. The increase, therefore supported efficient working capital, a chance for the company to negotiate adequately the payment terms with suppliers.
As mentioned earlier, the efficiency ratio will assist in indicating the effectiveness with which firms can utilize their assets. For instance, companies that use fewer resources to obtain greater value regarding goods produced are considered to be efficient. Based on the company analysis, the time Sports Direct PLC took to pay its creditors reduced from 92.25 days in 2014 to 78.18 days in 2015, which was a significant improvement (Sports Direct, 2013). The above indication is adequate to indicate that the firm has a higher strong debt collection hence efficient management.
Furthermore, an analysis of the stock turnover showed the amount of time taken by the company in generating its assets to sales. There was an improvement in 2015 as compared to the previous two years hence an indication that the firm has a strong asset efficiency. Moreover, Sports Direct has a higher stock turnover as compared to the rest of the industry.
SWOT Analysis for Sports Direct
Strength
Sports Direct as revealed from the study is UK’s number one sports retailer with over 470 stores in the country and other parts of the world. The company is further appreciated for its strong brand recognition in the market, a position that it has enjoyed over the years. Another significant attribute that makes the business to be recognized by consumers is the fact that Sports Direct has tied up with other firms like Nike, Adidas, and Reebok that are well established in the market. Besides, the company supplies consumers with a vast variety of products to its esteemed customers, an aspect that has made the business to be appreciated.
The firm’s management has successfully maintained an effective pricing strategy that has maneuvered well in the business setting. Moreover, to manage the issue of employee turnover, the company offers high bonuses to staff and managers keeping them motivated. As revealed by the study, it is worth acknowledging that Sports Direct has a strong online presence, an aspect that makes the firm to offer its products to consumers all the time, hence increasing its sales.
Weaknesses
It is worth appreciating that the sports industry where Sports Direct is situated is highly competitive, an aspect that results in slow growth in the market share for the firm. Some of the competitors in the industry include JJB Sports Plc, Foot Locker Inc., and Snow & Rock Sports Ltd which are well established in the market. Based on the financial analysis of the company, it is worth recognizing that the firm operates under low margin, an aspect that creates doubt about the future success of the enterprise.
Opportunities
The company has an opportunity to exploit both Eastern and Western Europe as it is yet to be fully exploited hence a chance for obtaining more revenue for the business. From past analysis, it is evident further that the company employs an aggressive strategy in acquiring various brands across Europe, hence an opportunity for the business to increase its market share.
Threats
The costs of raw materials for the sports apparels is escalating each day, hence a threat to the survival of the business. If not margin, the concept will lower the corporate revenue experienced since the business operates at a low-profit margin. Because of the Eurozone crisis, the change in tax policies is presumed to influence the business operation adversely. Furthermore, if not well managed, development of new digital technology will result in further complication of the firm operations.
External and internal analysis of the company
Political factors
The above issue includes the different political problems that influence business operations that change sports operation. This includes change in policy issues with regard to future taxation of the business or the employment laws that govern sports. For instance, a change in policy due to government change will contribute to price change hence influence business operations.
Economic factor
The economy is also an important aspect that affects the general economy of a country. For instance, with low unemployment rate, more consumers are likely to purchase the company products hence healthy for the business.
Social factors
Social factors are some of the significant attributes that influence business operations in the market. For instance, based on the social characteristics of the consumers, the business will be inclined towards meeting the respecting needs of the different social classes.
Technology
Business operations are influenced by a change in technology and as revealed from the study, the introduction of the online platform increased sales for the company. Innovation as revealed by different scholars helps in enhancing efficiency with which business operates.
Legal
This includes the legal business actions concerning employment and competition in the business market. For instance, the change I European law helped in influencing the business market.
Environmental
This is a major issue in any business as firms operations are understood to influence the environment in different ways. Therefore, to minimize environmental changes such as global warming and pollution, businesses are made to operate in certain ways.
Conclusion
References
Morning Star, (2016) Sports Direct International PLC ADR. [Online] [Accessed 1st September 2016], Available at: <http://financials.morningstar.com/ratios/r.html?t=SDISY>
Rutkowska, A., (2015) The Influence of Profitability Ratios and Company Size on Profitability and Investment Risk in the Capital Market. Folia Oeconomica Stetinensia, 15(1), pp.151-161.
Sports Direct, (2013) Sports Direct plc Annual Report 2013. [Online] [Accessed 1st September 2016], Available at: <http://www.sportsdirectplc.com/~/media/Files/S/Sports-Direct/annual-report/annual-report-2013.pdf>
Sports Direct, (2014) Sports Direct plc Annual Report 2014. [Online] [Accessed 1st September 2016], Available at <http://www.sportsdirectplc.com/~/media/Files/S/Sports-Direct/annual-report/annual-report-2013.pdf>
Sports Direct, (2015) Sports Direct plc Annual Report 2015. [Online] [Accessed 1st September 2016], Available at: <http://www.sportsdirectplc.com/~/media/Files/S/Sports-Direct/annual-report/annual-report-2013.pdf>
