UK's Sports Direct deal to enter U.S. market irks analysts


Reuters

UPDATE 2-UK's Sports Direct deal to enter U.S. market irks analysts


* Sports Direct buys 50 U.S. stores for $101 million
    * UK firm says deal provides U.S. foothold
    * Analysts say deal unwelcome distraction from core market

 (Adds analyst comment, updates shares)
    By James DaveyLONDON, April 21 (Reuters) - British retailer Sports Direct
<SPD.L> has entered the U.S. market by buying two loss-making
chains for $101 million, it said on Friday, drawing criticism
from analysts who said the firm should keep its focus at home
where it has struggled.
    Sports Direct, controlled by Chief Executive Mike Ashley,
has faced several challenges in the past two years. British
lawmakers condemned what they called its poor working conditions
and investors have criticised its corporate governance.
    The firm issued a profit warning in December after a slide
in sterling's value made it more costly for the firm to source
its branded goods from Asia. Last month, it said the devaluation
of the euro against the dollar would hit its gross margin.
    Its shares, which have fallen 22 percent in the past year,
were down 1 percent at 312 pence at 0931 GMT, valuing the
business at 1.74 billion pounds ($2.22 billion).
    Sports Direct said it had received approval from Delaware
Bankruptcy Court to buy 50 stores trading as Bob's Stores and
Eastern Mountain Sports through the bankruptcy process of
Eastern Outfitters, the chains' parent company. [nL1N1FN0ST]
    The acquired stores sell predominantly sports and casual
wear, as well as outdoor and camping equipment and clothing.
    "The acquisition is expected to complete in the first half
of May 2017 and will provide Sports Direct with a footprint in
U.S. bricks-and-mortar retail and a platform from which to grow
U.S. online sales," Sports Direct said.
    Analysts criticised the move that they said would distract
the company from efforts to lift its performance in Britain.
    "We find the timing extraordinary," analysts at Peel Hunt
wrote in a research note, changing their investment stance to
"add" from "buy". "What is not required, in our view, is a
major, and not inexpensive, distraction, 3,000 miles away."
    Analysts at Jefferies, who have a "hold" stance, also
questioned the timing.
    "The incremental challenge of breaking into the U.S.
coincides with the need for a drastic UK repositioning and for
European stabilisation. This may be a step too far," they said
in a note.
    The $101 million acquisition cost comprises loans advanced
by Sports Direct to Eastern Outfitters before and during the
Chapter 11 bankruptcy process, and the purchase of the firm's
debt.
    In the financial period to Jan. 28, 2017, the acquired
businesses made a pretax net operating loss of $26 million.
    The U.S. sporting goods sector is being tested by the
expansion of Internet shopping and discount chains. Several
retailers filed for bankruptcy in 2016, including Sports
Authority, speciality golf retailer Golfsmith International
Holdings and sports goods manufacturer Performance Sports Group.

    ($1 = 0.7806 pounds)

 (Editing by David Evans and Edmund Blair)
 ((james.davey@thomsonreuters.com; +44 20 7542 7674; Reuters
Messaging: james.davey.thomsonreuters.com@reuters.net))

Keywords: BOB'S STORES M&A/SPORTS DIRECT (UPDATE 2)



This article appears in: Politics , Stocks
Referenced Symbols: SPD


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