Frasers Group Defying Odds as Efforts to Scale Start to Pay

  • November 25, 2022

Although UK retail stocks have witnessed a considerable decline, Frasers Group Plc has defied the slump, which is a sign that Mike Ashley’s efforts to make the company the “Selfridges of Sport” are paying off. The stock is on track to be the only FTSE 350 Retail Index stock that has gained this year with a year-to-date increase of 15% relative to the benchmark, which has shed a third of its value.

Strategy to take stores upmarket enabled Frasers to boost scale

Ashley announced the campaign in 2016 and sought to take stores upmarket by giving more space to branded sportswear. In a note to clients, Numis’s Simon Bowler and Georgios Pilakoutas stated that the strategy opened up access to new goods and enabled Frasers to boost scale. By acquiring Savile Row tailor Gieves & Hawkes on Friday, Fraser’s highlighted its premium objectives and added one of the most known brands in British suitmaking.

Numis analysts commenced coverage on the stock this month with a buy rating and a price target of 1,000 pence, implying a 12% from the current price. However, they note that the target has upside potential, stating that the group’s underlying cash generation still needs to be fully grasped.

According to Bloomberg data, Ashley owns a 69% interest in Frasers. The self-described “power drinker,” who is no longer a director, now serves in an advising capacity since Michael Murray assumed the position of CEO in May.

The company’s tenacity is remarkable, given that most UK merchants are experiencing the biggest cost-of-living pinch since the Second World War. The downturn is anticipated to result in a 2% decrease in output and the loss of 500,000 jobs. However, on July 21, Frasers increased their earnings outlook, causing the shares to rise 27% that day.

Sports Direct to contribute 75% of Frasers revenue in 2023

Richard Chamberlain and other RBC analysts claim that the firm may have an advantage due to its aggressive pricing. Additionally, they believe that because they primarily cater to the young demographic, businesses like Sports Direct and the upscale Flannels brand will shield the business from the full effects of the slump. In 2023, Frasers expects Sports Direct to account for about 75% of its projected revenue.

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