JJB Hopes For World Cup Boost

Published in Company Comment on 27 May 2010

The sports retailer announces a record loss and gets a new Chairman.

JJB Sports (LSE: JJB) -- one of the UK's leading sports retailers, with 250 outlets -- released its final results today, together with an update on recent trading.

Murder on the sports floor

It would be a gross understatement to say that JJB's last financial year was a poor one.

In the 53 weeks to 31 January 2010, the Wigan-based retailer's revenue nearly halved, falling 42% to £372.5 million. Margins fell by 7.7 percentage points to 38.1% and JJB's adjusted loss before taxation more than tripled to £68.5 million.

However, JJB's woes don't end with those figures. The business came perilously close to collapse in 2009. First, the Original Shoe Company and Qubefootwear went into administration last February. Next, JJB sold its Fitness Clubs business for £83.4 million in March 2009.

The retailer then negotiated a Company Voluntary Arrangement in May 2009, in order to end 140 unwanted leases and reduce JJB's rent bill by £6 million a year. Next came the renegotiation of its banking facilities, securing a £25 million line of credit from Bank of Scotland.

Perhaps the most significant step in the saving of JJB was a share placing and open offer in October 2009. JJB raised £94 million net of expenses by issuing 400 million new shares at a discounted price of 25p. Although this severely diluted the firm's existing shareholders, it pulled the business back from the brink. 

Finally, JJB appointed a new CEO, ex-DSG director Keith Jones, in March 2010.

And you thought you'd had a difficult credit crunch. Frankly, it's a testament to the will and dedication of its directors that JJB avoided going into administration and still exists as a PLC today.

How's this year going?

After an annus horribilis like 2009, things can only get better for JJB in 2010.

In today's trading statement for the 16 weeks to 23 May, JJB reported like-for-like revenue (excluding VAT) up 7.5% on the same period of 2009. On the same basis, like-for-like sales growth has improved from -2% in February (blamed on bad weather) to +19% in May -- an encouraging upward trend.

Another positive sign is that JJB's overall gross margin has climbed to 43.6%, which is 6.8 percentage points higher than during the same period of 2009.

In preparation for the World Cup and sales of summer gear, JJB has increased its stock position by £37 million since the turn of the year. Nevertheless, the firm has net cash of £5.6 million.

Today's statement also revealed that JJB yesterday appointed a new Chairman, John Clare.

As I write, JJB's shares are down 12% at 17.75p.

What next?

After its near-death experience in 2009, JJB isn't going to leap back to good health. Indeed, in the words of its new Chairman:

"JJB's recovery will be neither quick nor easy. The Company suffered considerably through all the events of last year and it will take time to encourage customers back into our stores and rebuild our credibility as Britain's leading sports retailer."

JJB competes in a £5 billion market, but its customers -- mainly teenager and young adults -- are having a tough time. With nearly a million under-25s out of work, JJB and other retailers have struggled to cope with the weakness of the 'young pound'.

That said, the excitement surrounding the football World Cup -- which begins on 11 June -- is sure to stimulate higher sales than the spring/summer of 2009, when no major football tournament took place.

On the other hand, JJB came only 95th out of 100 in a recent survey of the UK's top retailers by Which? magazine. One criticism of the retailer is that its stores look old-fashioned, outdated and untidy. Although the company is revamping its stores, this turnaround is taking quite some time, and JJB still needs to work on its product offering.

With no dividend and a loss per share of almost 16p for 2009/10, I'm going to kick JJB into the stands. In my view, other niche retailers offer better value and a sounder strategy with less risk.

More from Cliff D'Arcy:

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