Blacks Leisure, the leading British outdoor retailer, could hardly have picked a worse time to issue yet another profit warning: just a few days before stock markets took a nose-dive, Blacks said that it would report a much wider loss than previously expected for the first half of its financial year, ended on Aug. 30, precipitating a drop in its share price which roughly halved its already battered market value.
Neil Gillis, chief executive of Blacks, said he was considering all options for the company’s action sports division – although analysts doubted there would be much appetite in the market. The board sports division, which has been causing the worst headaches over the last quarters, comprises 13 O’Neill stores, 39 Freespirit stores, two Mambo stores and three Animal stores. It has come under attack as the U.K.’s economic woes reduced spending on non-essential products, England’s weather this summer was more English than ever, and the Blacks banners struggled to compete with trendy brands such as Fat Face and White Stuff.
Ahead of the publication of its interim results, due on Oct. 31, the group pointed out that it had done well for most of the 26 weeks ended on Aug. 30, but suffered badly at the end of the summer. Blacks Leisure’s outdoor business, consisting of the Millets and Blacks banners, did roughly as expected, with a same-store sales decline of 5.2 percent compared with the same period last year.
However, the action sports division took a beating: its comparable sales fell by 16.1 percent, dragging the group’s same-store sales down by 7.7 percent for the first half. Furthermore, the group stated that it now expected its half-year losses to reach £4.5 million (€5.7m-$7.7m), before tax and exceptional items, compared with a smaller loss of £0.6 million for the same period last year.
Blacks had some reassuring words about its drive to save costs since Gillis took over as chief executive last year – saying that it had already achieved an annualized cost reduction of £5.6 million (€7.1m-$9.6m), ahead of original expectations. Part of the savings could be attributed to the integration of Sandcity, the distribution company for O’Neill in the U.K., which had been operating separately from head office. Then again, this led to exceptional restructuring costs of £1.2 million (€1.5m-$2.0m), and the accounts will be further undermined by an increase in exceptional onerous lease provisions of about £1 million.
Blacks Leisure reassuringly added that trading had been more encouraging in the first weeks of the second half-year, and sales in September had been in line with expectations. Furthermore, managers were pleased with improvements in working capital, which helped to reduce inventories by about 12 percent compared with the same time last year.
However, these statements failed to save Blacks from the wrath of investors. Before issuing its latest profit warning on Friday a week ago, the group’s shares stood at 89.5 pence, but by last Friday’s close they had dropped down to just 38.25 pence. The fall has been vertiginous since October last year, when the shares were still valued at 280 pence – making Blacks another woeful investment for Mike Ashley, the majority shareholder of Sports Direct International (SDI) and the embattled owner of Newcastle United football club, who owns 29 percent of Blacks.
