Sports Direct International is on the slide after unveiling a deal to take full control of Irish clothing retailer Heatons.

Mike Ashley’s retail business currently owns 50% of Heatons, which has 44 stores in the Republic of Ireland and ten in Northern Ireland, and is paying €47.5m for the rest. Heatons has a Sportsworld section in 27 of the 44 stores in the Republic, while the ten stores in Northern Ireland incorporate a Sports Direct section or have a Sports Direct outlet as part of the premises.

On top of that Heatons’ holding company, Warrnambool, runs five Sports Direct branded stores in Northern Ireland.

But shares in Sports Direct, which has come under further scrutiny this week over its working practices, are down 22.5p or nearly 3% at 753p. Some analysts were disappointed the company has not managed to close a bigger deal to boost its growth. Peel Hunt’s Jonathan Pritchard said:

Sports Direct is keeping itself busy, now acquiring the 50% of Heatons, the Irish retailer, that it doesn’t own. This looks like a perfectly sensible deal: Heatons is well known to Sports Direct, and the Sports Direct brand is well known in Ireland. On a low double digit multiple there is limited risk here but this is not the game changer that Sports Direct has been promising us and with core forecast momentum still profoundly negative, the shares hold no appeal to us whatsoever: we stick with a sell (target price 720p).

[Buying Heatons] doesn’t really move the dial: so it’s a worthy and probably slightly enhancing deal.

But there are much bigger issues surrounding Sports Direct at the moment. It has clearly stated that it wishes to be acquisitive and management is in active mode, what with today’s deal and the stake it took last week in Findel (it’s still unclear whether this was an attempt to stop kitbag being sold, or a genuine statement of intent towards the group (within which Express gifts could be of interest)). We will see.

We expect a major deal (ie £100m plus) by the end of the year. Of much more interest is the lack of momentum within the core business. We think that the current media fashion towards “exposing” the practices within Sports Direct are at best tedious, but sometimes mud sticks to retailers and sales growth is very poor anyway. There are a number of reasons for this... but the key issues we think are the lack of high store standards and exclusive third party product within the stores. Management is now looking to open 50,000 sq ft stores in city centres wherever it can. This is what the brands want (although we’re not sure it’s what the customer wants), but it will not be cheap for Sports Direct and there must be a material risk of cannibalisation to the existing chain.

The strategy suggests that the long established lower service, value-driven approach that Sports Direct has taken incredibly successfully over the years is becoming outdated. That’s a big statement but this is a big issue for Sports Direct and one it must solve quickly.

Unfortunately there’s no sign of sales growth re-emerging and increased own label penetration is propping up gross profit short term. That won’t persist indefinitely and we fear for forecasts.

Others are more positive. Freddie George at Cantor Fitzgerald said:

We commented in a recent update ‘the company has significant free cashflow with 2016 capital expenditure forecast at £65m but does not appear to have a clear strategy to reinvest these resources. The focus, in our view, should be on strategic acquisitions rather than on opportunistic investments, developing more broadly the business overseas and growing on-line sales’.

This acquisition is encouragingly strategic and in our view and should be viewed as positive. We are maintaining our hold recommendation and target price of 760p.

And Liberum issued a buy note, saying:

While it is not explicitly stated, the deal looks earnings enhancing immediately. In the year to April Heatons had sales of €219m and pretax profit of €10m. Sports Direct needs acquisitions to hit stretching employee share scheme targets. This is a small step towards those.