Is Sports Direct Getting Ready to Buy Finish Line?

Market watchers are still trying to determine the significance of a decision by U.K.-based sporting goods mega-firm Sports Direct International plc to snap up a 7.9 percent interest in The Finish Line Inc.

In a filing with the U.S. Securities and Exchange Commission on Friday, Sports Direct disclosed that it has an indirect economic interest in more than 3 million Finish Line shares. (Sports Direct holds an indirect economic interest in the shares through a derivative known as a contract for difference. The UK firm does not have voting power or beneficial ownership of shares.)

Sports Direct has moved aggressively over the past few years to snap up new businesses — including bankrupt Eastern Outfitters, which it is in the process of attempting to buy out of bankruptcy — and add them to its expanding portfolio. At the same time, the self-proclaimed No. 1 sports retailer in the U.K. has also taken investment stakes in several companies, including JD.com and French Connection, without escalating its role to ownership.

But in the case of Finish Line, at least one analyst said he believes Sports Direct’s new stake portends a full-on takeover of the retailer, which has struggled to keep its financial performance up to par in recent years.

It appears to us that Sports Direct is actively making an effort to purchase Finish Line, despite the fact that no mention of an active position was mentioned in the [SEC] filing,” Susquehanna Financial Group LLP analyst Sam Poser wrote Monday. “The purchase of all of Finish Line would provide leverage for Sports Direct’s total operation as well as provide better vendor terms from the likes of Nike, Adidas, Under Armour and others.”

Still, Poser said he doesn’t see a Sports Direct buyout bringing Finish Line out of the woods.

Given the strength of Foot Locker Inc., we do not believe that Sports Direct’s involvement or possible takeover would result in material improvements to Finish Line’s business,” Poser wrote. “However, shareholders would likely benefit from an attempt to buy Finish Line.”

Finish Line — which offloaded its running specialty business, JackRabbit, in January, in an attempt to rationalize its portfolio — posted disappointing fourth-quarter results, while its fiscal guidance signaled that weakness would continue throughout fiscal 2017.

The company said it expects comparable sales to increase low single digits, and earnings per share to be in the range of $1.12 to $1.23, an increase of 6 percent to 16 percent year over year. Analysts expected the firm to predict a comparable sales gain of 2.1 percent and EPS of $1.44.

According to its website, Sports Direct operates 700 sports stores in the U.K. and continental Europe, and 80 premium lifestyle stores in the U.K. Its portfolio of brands includes Slazenger, Everlast and Kangol.

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