Margin dip takes shine off Sports Direct sales rise

LONDON, United Kingdom - Britain's biggest sporting goods retailer Sports Direct posted a 12 percent rise in quarterly sales, with growing demand at its sports stores tempered by a drop in its profitability and falling sales at its fashion and brands businesses.

Mark-downs to clear stock in Austria following the acquisition of Eybl in May 2013, and in the UK, after England's poor showing at the soccer World Cup in Brazil, helped take 10 basis points of the group's gross margin in its first quarter.

Shares in the group fell 2 percent to 705 pence at 0843 GMT, against a FTSE 100 Index .FTSE down 0.2 percent.

"Could be some negative reaction today, but only first quarter and we remain confident in Sports Direct's longer-term growth potential," analysts at Liberum said.

Under the stewardship of Mike Ashley, its billionaire founder and controller who also owns English soccer club Newcastle United, Sports Direct has grown rapidly to dominate Britain's high street with its broad ranges and low prices.

The group, which has more than 400 UK sports stores and 270 elsewhere in Europe, as well as a raft of brands and fashion chains, said on Wednesday group sales for the 13 weeks to July 27 rose to 711.2 million pounds ($1.14 billion) from 634 million a year ago, with group gross profit up 11.8 percent to 301.2 million pounds.

The company's core sports retail division led the growth with total sales up 16.3 percent in the period, ahead of forecasts for 15 percent, and gross profit up 15.8 percent.

Sales at its smaller fashion unit, which includes chains such as USC and which has undergone restructuring and store closures following the acquisition of Republic in 2013, fell 8.8 percent, and were down 7.1 percent at its brands division.

Sports Direct Chief Executive Dave Forsey said trading for the first quarter and since had been in line with its expectations and reiterated its target for full-year underlying core earnings before share scheme costs of 360 million pounds.