Blaming depleted inventories of products due to its financial difficulties, negative publicity and the weakened economy, JJB Sports reported in an interim statement a drop of 23.3 percent in its sales on a comparable basis for the 16-week period that ended on May 17, with a decline of 23.3 percent for its remaining retail stores and an increase of 7.1 percent for its fitness clubs, which were sold on March 25. Total revenues were down by 42.1 percent and the gross margin was off by 5.8 percentage points as compared to one year ago.
Stock levels at JJB are currently 46.9 percent lower than at the same time a year ago. The company admits that many suppliers have been reluctant to deliver products because of a lack of credit insurance cover and a widely held belief that the company was likely to go into administration. New financing is expected to become available by June 1, following a series of deals with store landlords and financial institutions that we have already reported about, but because lead times between orders and deliveries can be up to six months, JJB’s management doesn’t expect any significant improvement in sales until the 4th quarter of its financial year, ending next January.
Sir David Jones, who was appointed executive chairman last January, said he was very encouraged by the support that JJB is receiving from major suppliers, including Adidas and Nike. Meanwhile, the company is working on reducing its costs.
The company voluntary arrangement (CVA) concluded last April 6 with its landlords should go into effect by tomorrow. The arrangement provided for ending some leases on closed stores and paying other rents monthly, instead of quarterly. It also allowed for additional borrowing from two of its banks, which would become available around June 1 if the CVA is implemented on around the expected date. Bank of Scotland, one of the lenders, would receive warrants to subscribe for new ordinary shares in JJB representing about 4.5 percent of its shares.
However, JJB warned last week that the CVA could still face a challenge before May 28. Since the additional funds are not available until after it is implemented, the company can’t consider itself a going concern, so can’t finalize and publish audited results for the fiscal year ended Jan. 25. The company did, however, release unaudited figures, and said that the full-year results should be available in the first half of June.
The preliminary, unaudited figures for the last full fiscal year show that total revenues declined by 11.5 percent to £718.3 million (€817.6m-$1,141.4m), while the gross margin increased by 0.8 percentage points to 50.8 percent. The adjusted operating loss was £7.0 million (€8.0m-$11.1m), compared with an adjusted operating profit of £34.3 million for the 2007-08 fiscal year. These figures do not include charges of £171.7 million this year or £23.0 million last year.
The actual loss before taxation was £189.2 million (€215.3m-$300.6m), compared with income of £10.8 million last year. Inventories at the end of the year were £70.6 million (€80.4m-$112.2m), 38.6 percent lower than in 2008.
Retail sales dropped by 13.4 percent last year to £645.6 million (€734.8m-$1,025.9m), with a 6.9 percent fall on a comparable store basis. Among other reasons for the poor performance, most of them noted throughout the year as the company struggled to stay afloat, were bad business decisions, extensive store closures, failed attempts to reposition the banner, and substantial exceptional items from asset impairments and store closure provisions.
The gross margin on retail operations declined by only 0.3 percentage points to 45.6 percent, with a good product mix offsetting extensive Christmas-season promotions. However, the operating profit before central costs and exceptional operating items fell to £13.0 million (€15.0m-$20.9m).
Sir David Jones, who was appointed executive chairman last January, attributed JJB’s problems at least in part to the strategy conducted by the former chief executive, Chris Ronnie, of trying to take market share away from Sports Direct and JD Sports Fashion by introducing mass-market products and by moving into fashion with the purchase in 2008 of Original Shoe Company and Qube.
While noting that the two chains ended up with losses of £18 million (€20.5m-$28.6m) and a £30 million (€34.1m-$47.7m) cash outflow for the year through January 2009, Sir Jones said these business decisions caused confusion within the company’s buying department, the rest of the staff and final consumers. He also said that internal controls broke down after the departure one year ago of the former finance director, David Greenwood, impacting cash outflow.
Eventually, JJB was forced to sell its profitable fitness clubs to the company’s founder, Dave Whelan, for £83.4 million (€94.9m-$132.5m) in March. For the last financial year, preliminary figures show a 9.7 percent increase in revenues from this segment to £72.7 million (€82.7m-$115.5m), or a 7.2 percent increase on a comparable basis. JJB started the fiscal year with 49 clubs, and closed it out with 55.
JJB currently has 253 retail stores. The company closed or transferred to third parties a total of 124 stores in the past financial year. Net debt declined slightly last year to £34.4 million (€39.7m-$55.3m) thanks to the proceeds from the sale of five indoor soccer domes and of the group’s stake in Umbro. Further proceeds are due to come in from the sale of a company helicopter next month and the rights to the Slazenger brand in November.
