Mike Ashley’s Sports Direct makesplay for kit-maker Umbro

Sports Direct, the discount sportswear chain controlled by Newscastle United owner Mike Ashley, has emerged as the frontrunner to buy Umbro, the football kit-maker put up for sale by Nike last week.

However, private equity firms are also expected to take an interest in the company, which the US sportswear giant bought for £285 million in 2008. It is believed that a return to the stock market is unlikely because of volatile conditions.

Nike said last week that it wanted to offload Umbro and Cole Haan, a leather goods company, to increase its focus on its core brand and on faster-growing labels such as Converse.

Umbro, founded in 1924, provides the kits for Rangers and Livingston, as well as the England and Ireland national teams and Premier League champion Manchester City.

The business achieved annual sales of $224 million (£146m) in 2011, unchanged from the previous year. In 2009, Nike took a $401m impairment charge to reduce the carrying value of Umbro’s assets, as projected future cash flows fell below the level it expected at the time of the acquisition.

In its most recent set of figures, Nike posted a 15 per cent rise in revenues to £5.8 billion for the third quarter. It said sales at Umbro were up compared with the previous year, but Cole Haan was “essentially flat”.

Chief executive Mike Parker said selling the two brands “will allow us to focus our resources on the highest-potential opportunities for Nike to continue to drive sustainable, profitable growth for shareholders”.

Sports Direct, which owned a 30 per cent stake in Umbro before its takeover, has reported strong sales growth for February and March and said Ashley was in line for a £23m shares bonus if he meets stretching earnings targets. Sales for the nine weeks to 25 March totalled £267.6m, an increase of 13.2 per cent over the same period in 2011.

It is due to give some 2,000 staff shares worth about £50,000 each after hitting sales targets in 2010 and 2011. It also launched a second scheme based on targets over the next four years.

The company, which owns brands Lonsdale and Slazenger, has set a new “stretched” target for Ashley, who as executive deputy chairman receives no pay but will pick up eight million shares if the company’s earnings rise by 70 per cent to £340m in 2015.

In April, German sportswear group Adidas, which has forecast sales of football-related products of more than €1.5 billion (£1.2bn) this year, said it planned to slash the number of products it offers in a bid to improve profitability.

Nike said its decision to sell the Umbro and Cole Haan brands was not a reaction to Adidas’ move. It will give more details on the impact of the disposals when it announces its financial results at the end of this month. It hopes to complete the sale by the end of May 2013.

Sports Direct, which last year paid £7m for an 80 per cent stake in Sir Tom Hunter’s USC and Cruise clothing businesses, is due to announce its full-year results next month.