LONDON (Reuters) - British retailer Sports Direct (L:SPD) took an 85.4 million pound charge for its equity investment in department store chain Debenhams (L:DEB), taking the shine off a 12.2 percent jump in the group's 2017-18 core earnings.
Shares in Sports Direct, founded and run by billionaire Mike Ashley, fell as much as 11.6 percent on Thursday after the firm revealed the Debenhams charge.
The group has a 29.7 percent stake in Debenhams, whose shares have slumped 72 percent over the last year after a series of profit warnings.
Sports Direct has several other equity investments, including in House of Fraser, French Connection (L:FCCN) and Goals Soccer Centres (L:GOAL).
"It’s hard to fathom the precise strategy at play here," said Laith Khalaf, analyst at Hargreaves Lansdown (LON:HRGV).
Prior to Thursday's update Sports Direct's shares had increased 45 percent over the last year as its strategy to smarten up its stores and sell more premium products gained some traction.
The stock was down 31 pence at 405 pence at 0825 GMT, valuing the business at around 2.13 billion pounds.
Sports Direct made underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of 306.1 million pounds in the year to April 29 - ahead of analysts' average forecast of 296.8 million pounds, according to Reuters' data, and 272.7 million pounds made in 2016-17.
The firm, which has been heavily criticised for its past treatment of workers, its financial disclosure and poor corporate governance, in December forecast full-year core earnings growth of 5-15 percent.
Ashley is trying to revive sales and profit growth with smarter stores that sell more premium products from its four key suppliers - Nike (N:NKE), Adidas (DE:ADSGn), Puma (DE:PUMG) and Under Armour (N:UAA).
The retailer calls this its "high street elevation strategy".
"The elevation strategy continues to exceed expectations," said Michael Murray, who has the title head of elevation.
"As the property pipeline and brand relationships accelerate, we are confident in achieving between a 5 percent and 15 percent improvement in underlying EBITDA for the coming financial (2018-19) period," he said.
Sports Direct's reported pretax profit fell 72.5 percent to 77.5 million pounds, partly reflecting the Debenhams charge.