April 21, 2017 / 7:28 AM / 3 months ago

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

3 Min Read

* 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 Davey

LONDON, April 21 (Reuters) - British retailer Sports Direct 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.

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

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