UPDATE 1-Levi Strauss to buy stores from Anchor Blue

* To buy Levi's, Dockers outlet stores from Anchor Blue

* Anchor Blue files for bankruptcy; will shutter 50 stores
(Adds details about Anchor Blue bankruptcy filing, analyst
comments)

SAN FRANCISCO, May 27 (Reuters) - Levi Strauss & Co
[LEVST.UL] said on Wednesday it agreed to buy the operating
rights to 73 Levi's and Dockers Outlet stores operated by Anchor
Blue Retail Group Inc, which is filing for bankruptcy.

Anchor Blue and its subsidiaries have asked the court to
allow the sale. They cited the U.S. recession, saying the
slowdown has severely affected its key market of California and
eroded profitability.

Levi Strauss, the San Francisco-based jeans giant, said the
proposed deal would be a "profitable growth opportunity" for the
company.

"We believe that this transaction will strengthen our
ability to manage our brands' positioning effectively in the
outlet channel," said Robert Hanson, president of Levi Strauss
Americas.

Other retailers have been snapping up competitors' stores as
the economic slowdown has prompted a rash of bankruptcies.
Kohl's Corp (KSS.N: Quote, Profile, Research) said in December it would take over 31
Mervyn's locations after the mid-tier department store chain
closed down.

"When we have seen other bankruptcies, it usually means that
the survivors can pick up market share," said Patricia Edwards,
a retail analyst with Storehouse Partners. "There will be
benefits for retailers who can survive as the weaker parts of
the herd get culled."

SALE

Anchor Blue Retail Group, which filed for bankruptcy in the
U.S. Bankruptcy Court for the District of Delaware, is the
holding company for two subsidiaries.

The company's MOST Division is an outlet store retailer that
holds the exclusive U.S. license for Levi's Outlet & Dockers
Outlet Stores. The unit operates 74 stores across the United
States, most of which Levi's is seeking to buy.

The company's other division, Anchor Blue, sells casual
apparel and accessories for teens and has 177 stores in 12
states.

Most stores will be open for business as usual, though the
company said it plans to close about 50 underperforming stores
in nine U.S. states, the bulk of which are in California and
Florida.

"The unprecedented sustained economic downturn and a related
drop in consumer spending, especially in the teenage market,
have had a severe impact on our financial performance," said
Anchor Blue Chief Executive Thomas Sands, in a statement.

The company said it secured $20 million in
debtor-in-possession financing from Wachovia Capital Finance to
help fund operations during the reorganization.

The sale of the Levi's & Dockers Outlet is expected to close
later this summer.

Sun Capital Partners Inc bought Anchor Blue Retail Group in
2003. Two years later, Sun Capital and Anchor Blue completed a
leverage recapitalization and sold a minority equity stake to
Ares Management LLC.

As of May 23, the company had more than 2,800 employees.

The case is In re Anchor Blue Retail Group Inc, US
Bankruptcy Court, District of Delaware, No. 09-11770.
(Reporting by Alexandria Sage, additional reporting by Chelsea
Emery in New York; editing by Andre Grenon, Matthew Lewis)