Frasers Group PLC's Share Price Plummets

Shares of Frasers Group PLC plunged more than 12% on Thursday after the retail giant reported weaker-than-expected first-half profits and lowered its full-year earnings guidance.

Reasons for Decline

The company cited weakened consumer confidence and tougher trading conditions as key drivers of the revised outlook, which rattled investor sentiment.

Revised Earnings Guidance

Frasers reduced its adjusted pre-tax profit guidance for FY25 to a range of £550-600 million, down from the previous £575-625 million. The mid-point cut of approximately 4% reflects a challenging retail environment and cost pressures from the recent UK Budget.

Analyst Reactions

Analysts at Jefferies and RBC Capital Markets highlighted the company’s cautious tone, noting that recent trading conditions have been particularly difficult for the group’s core segments.

First-Half Results

The retailer’s H1 results further underscored the headwinds. Adjusted PBT for the first half came in at £299 million, below market consensus of £364 million. Revenues totaled £2.54 billion, missing the consensus of £2.84 billion. Adjusted earnings per share of 51.0p also lagged expectations of 53.7p.

Segment Performance

While Frasers achieved some success in its Premium Lifestyle segment, which saw a 41% surge in operating profit driven by integration efficiencies and cost controls, other divisions underperformed. UK Sports Retail, its largest segment, posted a modest 3% increase in trading profit to £255 million, but this was weighed down by planned revenue declines at Game UK and Studio Retail. International Retail suffered a significant drop, with revenues affected by poor performance at Game Spain and Sportmaster. The Financial Services division also reported softer results, primarily due to the winding down of the old Studio Retail credit book. Additionally, the group incurred a £9 million foreign exchange loss and saw its net debt rise to £725 million, higher than expected, due to strategic investments in businesses like Accent Group and Hugo Boss.

Strategic Adjustments

Frasers’ revised FY25 guidance reflects its expectation of £50 million in incremental costs stemming from the UK Budget, including increases in National Insurance contributions and the National Living Wage. The company said it is actively working to mitigate these expenses while pursuing its growth initiatives.

Long-Term Prospects

Despite the near-term challenges, Frasers remains well-positioned for long-term growth, particularly through its upscale Flannels format and omnichannel sports retailing in Europe. RBC analysts noted that the group’s diversification and resilience—boosted by strong cash generation and strategic investments—offer a degree of protection from pressures on any one segment of consumer spending.

Loyalty Program Success

The group has made progress in its Frasers Plus loyalty program, which added 272,000 new customers during H1 and now accounts for 14% of UK online sales. Management highlighted this initiative, along with international expansion efforts, as key drivers of future growth.

Outlook

“Despite the near-term headwinds, we continue to view Frasers as an undervalued asset, with a significant medium-term growth opportunity,” said analysts at Jefferies.