Why Sports Direct could outperform Tesco, Next, Debenhams and Sainsbury’s after its acquisition

Sports Direct International Plc (LON:SPD) (SPD.L) could beat Tesco PLC (LON:TSCO) (TSCO.L), Next plc (LON:NXT) (NXT.L), Debenhams Plc (LON:DEB) (DEB.L) and J Sainsbury plc (LON:SBRY) (SBRY.L)

Sports Direct International Plc
Sports Direct International Plc

The share price of Sports Direct International Plc (LON:SPD) (SPD.L) is flat today in spite of an acquisition update. On 19 April, the company received the approval of the Delaware Bankruptcy Court to acquire certain assets of Eastern Outfitters LLC.

This comprises of the businesses of Bob’s Stores and Eastern Mountain Sports. The businesses to be acquired include approximately 50 retail stores in the US under the Bob’s Stores and Eastern Mountain Stores fascias. They sell predominantly sports and casual wear, as well as outdoor and camping equipment and clothing.

The aggregate cost of the acquisition to Sports Direct amounts to $101 million in cash. In the financial period to 28 January 2017, the businesses being acquired incurred a pre-tax net operating loss of $26 million. As at 28 January 2017, the gross assets of the businesses being acquired was $126 million.

The acquisition is due to complete in the first half of May 2017. It gives the company a footprint in US retail as well as a platform from which to grow its US online sales.

Since the start of the year, the Sports Direct share price has risen 12%. This is ahead of the performance of other retail stocks such as Tesco PLC (LON:TSCO) (TSCO.L), Next plc (LON:NXT) (NXT.L), Debenhams Plc (LON:DEB) (DEB.L) and J Sainsbury plc (LON:SBRY) (SBRY.L). Tesco shares are 15% down, Next is 13% lower, Sainsbury’s is up 6% and Debenhams has fallen 9%.

In my view, the acquisition by Sports Direct could provide a platform for future growth. Although there is no certainty it will be a success after some disappointment in the company’s international operations, I feel it could help to diversify the business at a time when the UK’s economic outlook is uncertain. Therefore, I believe the Sports Direct share price could perform relatively well in the long run.