JJB, the second-largest British sports retailer, came under savage attack last week as it lost the confidence of a leading credit insurer and bailiffs were sent out to collect unpaid rents. Amid extreme turbulence on European stock markets, the price of JJB shares fell as low as 12 pence, compared with 104 pence less than three weeks ago.
The crisis started at the end of last month, when JJB unveiled an unexpected loss and its auditors, Deloitte & Touche, raised doubts about the company’s viability as a going concern (see previous issue of SGI Europe). They alleged that JJB had breached covenants on existing bank loans and expressed doubts that the retailer would manage to reimburse a new bridging loan of £20 million (€25.5m-$34.1m) from cash flow and the sale of assets – a shock warning that nearly halved JJB’s market value in a single day.
The retailer took another blow last week when Coface, one of the biggest credit insurers, confirmed that it would no longer provide cover to JJB’s suppliers. The retailer protested that this was not affecting its business, but at the end of Wednesday’s trading session its shares had still hit an all-time low of 12 pence.
The shares rebounded dramatically on the next day, jumping by over 50 percent to 18.25 pence, after The Daily Telegraph reported that a Middle Eastern buyer was interested in acquiring JJB’s health club division. The newspaper wrote that the unidentified buyer may be willing to pay as much as £100 million (€127.3m-$170.6m) for the company’s 61 fitness clubs in the U.K. and Ireland.
However, the retailer suffered more disaster reports last week, as Retail Week magazine revealed that landlords had sent bailiffs to visit a dozen JJB stores and collect rent. The landlords were reportedly seeking a statutory demand for outstanding payments, which would give JJB two weeks to pay up or face bankruptcy proceedings.
Retail Week reported that JJB was owing at least £500,000 (€636,000-$853,000) on empty stores for which it still has leasing liability. The landlords apparently became alarmed about JJB’s ability to pay after the retailer sent them post-dated checks. JJB countered that it had paid all its rents in full and in a timely manner for its operational stores, but it was negotiating with the landlords of a few locations where it ceased trading.
The share crash is doubly painful for Chris Ronnie, JJB’s chief executive, who is also one of the retailer’s leading shareholders. Backed by Exista, an Icelandic insurance group, he acquired 29 percent of JJB from David Whelan in June 2007, at a price of 275 pence per share. Analysts aren’t convinced that his store closures and marketing investments are paying off, and the collapse of the share price has almost destroyed his personal investment.
To make matters worse, JJB is linked with financial institutions from Iceland, which was virtually bankrupted last week. Only a few weeks ago JJB obtained its bridging loan of £20 million from Kaupthing Bank, one of the three largest in Iceland, which has now been nationalized. Several British retailers are facing acute financing problems as a result of Iceland’s meltdown, but it remains unclear if it will affect JJB. The retailer has appointed KPMG, the accountancy firm, to advise on its strategy and lead negotiations with its banks.
Under the circumstances, JJB made less of an impact with its appointment of Darran Medley, former head of design at JD, to take charge of its product development. Last year about 20 percent of JJB’s sales were derived from its own and licensed labels, but the retailer wants to lift the rate to about 45 percent by the end of the next financial year. It has therefore beefed up its team of designers, increasing their numbers from two to 23 in about a year. The team will be steered by Medley, who left JD in 2004.
