After looking at Sports Direct International plc’s (LSE:SPD) latest earnings update (29 October 2017), I found it helpful to revisit the company’s performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings. View our latest analysis for Sports Direct International

How Well Did SPD Perform?

For the most up-to-date info, I use data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This method enables me to examine many different companies in a uniform manner using the latest information. “For Sports Direct International, its “, most recent bottom-line is £163.5M, which, against the previous year’s level, has plunged by -27.18%. Since these values are relatively myopic, I’ve calculated an annualized five-year figure for SPD’s net income, which stands at £177.6M. This doesn’t seem to paint a better picture, as earnings seem to have gradually been falling over the longer term.

Why could this be happening? Let’s examine what’s occurring with margins and if the whole industry is facing the same headwind. In the past couple of years, revenue growth has been lagging behind which implies that Sports Direct International’s bottom line has been driven by unsustainable cost-reductions. Scanning growth from a sector-level, the UK specialty retail industry has been growing, albeit, at a subdued single-digit rate of 8.60% over the prior year, and 7.53% over the previous five years. This means that any uplift the industry is enjoying, Sports Direct International has not been able to leverage it as much as its industry peers.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Usually companies that experience a prolonged period of reduction in earnings are undergoing some sort of reinvestment phase in order to keep up with the recent industry expansion and disruption. You should continue to research Sports Direct International to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for SPD’s future growth? Take a look at our free research report of analyst consensus for SPD’s outlook.