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First Shots Fired: Brits Eye U.S. Retail

By bob mcgee – april 24, 2017
By Sdmvaradha (Own work) [CC BY-SA 4.0], via Wikimedia Commons

Some 53 years and two months after the Fab Four landed at JFK Airport, the U.S. is preparing for another British invasion of sorts, and bracing for reaction by consumers and investors alike., like the Beatles before them, is coming to America, making some noise and likely pushing to become a major player on the U.S. scene.  

“We aspire to be a leading sports and lifestyle retailer internationally, and to deliver sustainable growth for our shareholders in the medium to long-term,”, headed by its effervescent CEO and founder Mike Ashley, wrote in its annual report last year.  

But the timing of the company’s recent actions, to acquire approximately 50 doors of the bankrupt Bob’s Stores and Eastern Mountain Sports chains for $101 million and to buy more than 3.19 million shares for a 7.9 percent stake in athletic specialist The Finish Line, is already being questioned on both sides of the pond.  

“The incremental challenge of breaking into the U.S. coincides with the need for a drastic U.K. repositioning and for European stabilization. This may be a step too far,” wrote British analysts from Jefferies.

“The incremental challenge of breaking into the U.S. coincides with the need for a drastic U.K. repositioning and for European stabilization. This may be a step too far,”wrote British analysts from Jefferies.

Said analysts at Peel Hunt in London, “We find the timing (of Sport Direct’s acquisitions) extraordinary. What is not required, in our view, is a major and not inexpensive distraction, 3,000 miles away.”  

In the U.S., Susquehanna analyst Sam Poser suggested in an April 17 note that while an eventual, outright acquisition of FINL by Sports Direct might improve the British retailer’s vendor terms with major athletic brands such as Nike and Adidas, it would be unlikely to result in material improvements to Finish Line as it continues battling its stronger rival in Foot Locker. The combined annual revenues of Sports Direct and Finish Line would exceed $5.56 billion, equal to approximately 72 percent of Foot Locker’s FY16 revenues of $7.76 billion.  

In its most recent fiscal year that ended in April 2016, Group revenues at Sports Direct rose 2.5 percent to the equivalent of $3.72 billion on a 2.2 percent drop in EBITDA and a flat gross margin of 44.6 percent as store count rose 11 percent to 733 locations. Sales in the Sports Retail segment improved 4 percent for the year on a stagnant gross margin; Premium Lifestyle segment revenues slipped 13 percent to the equivalent of $244.5 million on a 330-basis point improvement in gross margins. Sports Direct’s total square footage grew 6.5 percent last fiscal year to 8.25 million square meters with 65 percent of doors, or 473 locations, in the U.K. or Northern Ireland.  

Sports Direct may have funded its acquisitions of Bob’s Stores, EMS and the Finish Line stock purchase from the $137.5 million in cash it received earlier this month from its divestiture of the Dunlop brand and related wholesale and licensing businesses. Also, this month, the retailer, which saw 22 percent of its 29,000-strong workforce turn over in FY16, elected a 30-year old store manager as the first workers’ representative to the board of the publicly-traded company.

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