In reporting higher losses for the first half ended July 31, the management of the recently refinanced sporting goods retailer said its results for the current financial year will be worse than expected in the absence of a turnaround during the critical Christmas selling period. However, it declared itself confident about its return to growth and profitability, thanks notably to the establishment of new processes and systems and higher cost savings than planned, especially in the area of logistics.

In spite of the closing of unprofitable stores and other measures, JJB Sports' pre-tax and net loss expanded to £66.5 million (€77.3m-$106.6m) in the 26 weeks to July 31, from £24.0 million in the corresponding period one year ago. Even excluding extraordinary items, the adjusted operating loss was £36.7 million (€42.7m-$58.8m) compared with £22.5 million and the adjusted pre-tax loss reached £35.5 million (€41.3m-$56.9m), worse than last year's £21.9 million.

Margins declined, especially in the second quarter, as the company sold off excess stock. Gross margins fell to 35.8 percent, down by 6.4 percentage points from the comparative 2010 period, but the margin would have reached 48.5 percent without the closeout sales.

JJB Sports Consolidated Income Statement

(Million £, Six months ended July 31)

 

2011

2010

%
Change

TOTAL REVENUES

142,367

184,007

-22.6

Cost of Sales

91,354

106,443

-14.2

Other Operating Income

881

658

33.9

Distribution Expense

8,702

9,908

-12.2

Administration Expense

11,566

10,771

7.4

Selling Expense

99,300

82,179

20.8

Investment Income

84

491

-82.9

Finance costs

263

397

-33.8

Derivative instruments

1,475

1,129

30.6

Pre-Tax

(66516)

(26959)

146.7

Taxation

-

-

-

NET LOSS

66516

26959

146.7

Pence/share - diluted loss

22.33

-8.17

-373.3

Comparable store sales fell by 17.7 percent, due in part to the absence of a stimulating mega-event such as last year's World Cup of football. Excluding the football category, same-store sales were down by only 5.5 per cent. With the number of stores reduced by 49 since April 2010, total revenues declined by 22.6 percent to £142.4 million (€165.5m-$228.2m), excluding previously divested operations.

As of July 31, the company operated 202 stores measuring 2.3 million square feet of retail space, down from 247 retail stores with 2.7 million square feet of retail space at the end of January. The new arrangements made with the landlords of the stores have allowed JJB to save on its rental costs.

Seven of the stores that were closed have been reclaimed by their landlords, and JJB is paying only 45 percent of the rent for the others through next April. Another two stores will be closed down by next April, followed by 46 others in the subsequent 12 months. The company has refitted 86 stores, but to save cash, the store refitting program is being slowed down.

The company said market conditions in the U.K. started to deteriorate at the end of its second quarter, due in part to the weather, and they did not recover in October. It added that JJB's performance has been adversely affected by the low level of consumer confidence in the U.K. and Ireland, which is expected to continue for some considerable time. It expressed hope that the Christmas season, the January sales and next year's European Football Championship and Olympics will offer opportunities for a turnaround.

JJB has been expanding its private-label program, especially in the areas of swimwear and running shoes. It has recruited new people to run its stores and to improve operations at its service centers.

Last July, the company hired a new trading director, Alison Broadhurst, and a marketing director, Claire Bayliss. To help boost its sales of football products, JJB has just appointed a new director of football, Ray Evans, who has spent 11 years with an online retailer, Kitbag, first as commercial director and then as managing director. He will take the position at the beginning of 2012.