JJB Sports boss says it is burning through cash reserves

The chief executive of JJB Sports today said he had a mountain to climb as the retailer reported annual losses of nearly £70m and revealed it was burning through its cash reserves at an alarming rate.

“JJB’s recovery will be neither quick nor easy,” said Keith Jones, who took over two months ago. “We have to heal the scars of the past and get much, much better at the basic business of retailing.”

JJB managed to stave off collapse last year with an emergency restructuring that saw its fitness club division auctioned for £83m, the closure of 140 stores as well as a £94m capital raising. It remains, however, at the centre of three investigations, including a fraud inquiry, dating back to the tenure of Chris Ronnie who ran JJB between June 2007 and March 2009.

In exchange for immunity JJB blew the whistle on suspected collusion with arch-rival Sports Direct during that time, prompting the Office of Fair Trading to launch a price-fixing investigation. Ronnie counters that the company is using him as a “scapegoat”. The OFT called in its sister agency the Serious Fraud Office, which is looking at suspected offences under the Fraud Act.

The dramatic events resulted in collapsing sales and saw the company plunge deeper into the red with losses widening from £21.8m in 2009 to £68.5m in the year to 31 January. Sales slumped 42% to £372.5m after suppliers, fearful of the company’s future, held back new stock.

Analysts raised eyebrows on seeing that JJB’s net cash had declined from £58.5m at the year end to £5.6m now but the company said the fall reflected its investment in stock. It has paid Bank of Scotland a fee of £125,000 to relax the conditions on its £25m credit facility.

One leading City analyst, Philip Dorgan, of Ambrian, upgraded the shares from a sell to a hold on first seeing the results, but swiftly downgraded them again after a meeting with the management.

He said the recovery plan had been “naive” and did not expect the retailer to turn a profit for at least two years. “The market is bound to worry that this could lead to a further refinancing,” he said. “While JJB is confident there is sufficient headroom in its banking facilities, given the uncertainty surrounding the trading outlook investors may be less relaxed. Mike Ashley must be licking his lips.” JJB’s shares, which have fallen by 40% in the last six months, closed down 2.75p at 17.5p.

Jones was poached from electricals group DSG International by his old boss, former chief executive John Clare, whose elevation to chairman of JJB was confirmed today . After a troubled period in the post Sir David Jones resigned on health grounds in January.

The chief executive said 2009 was the “most difficult in the history of JJB Sports” and it would take “three years of hard work and determination” to turn it around. He said trading had begun to improve with like-for-like sales up 19% in May. “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.”

To win back customers Jones said the retailer would target amateurs and sporting families, a market he estimates is worth £2.5bn. It also expects to benefit from replica kit sales during the World Cup.

Full Article: http://www.guardian.co.uk/business/2010/may/27/jjb-sports-reports-losses-of-70m

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