October 27, 2011 4:07 pm

Blacks Leisure in red to tune of £16m

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Blacks Leisure, the outdoor equipment and clothing retailer, has plunged deeper into the red at its half-year results, more than doubling pre-tax losses to £16m as sales continue to fall.

Analysts believe the company will need to raise at least £20m in equity in the new year in order to continue as a going concern and convince lender Bank of Scotland (part of Lloyds Banking) to agree to a further refinancing of its £40m banking facilities prior to its February year-end.

The retailer’s new management team will embark on a roadshow with investors before Christmas, including its biggest shareholder, Mike Ashley, whose Sports Direct chain holds a 21 per cent stake in Blacks, and famously refused to participate in last May’s £20m rights issue.

“We haven’t unveiled our turnround strategy yet, but we’re a long way down the road,” said Peter Williams, Blacks’ interim non-executive chairman, who has now been appointed to the role in a permanent capacity. “We haven’t met with Sports Direct yet. When there’s a different plan, and a different group of people, maybe their attitude will be different.”

In the past eight weeks, like-for-like sales have fallen 14. 2 per cent against the same period a year ago, due to the unseasonally warm weather. In the 26 weeks to August 27, like-for-like sales declined 7.2 per cent on sales revenues that dipped 7 per cent to £81.1m.

Julia Reynolds, chief executive, said there had been an “urgent focus on operational improvements,” since her appointment two months ago. A clearance sale reduced stock levels by nearly 28 per cent to £28.5m in period, though discounting dragged down the gross margin by 510 basis points.

The former chief executive of online lingerie chain Figleaves.com, Ms Reynolds previously spent eight years as a director of Tesco and launched its Florence & Fred brand.

“The warehouse has been re-named the distribution centre, as stock needs to go through it, not sit in it,” she said, noting that unsold seasonal lines had previously been sent back for storage and eventual resale, tying up cash. Describing her management style as “very hands on”, she said she had already met every manager of Black’s 298 stores, 195 of which trade as Millets, and wants to introduce higher margin own-label brands and acquire the rights to distribute other outdoor brands.

Singer, Blacks’ broker, has placed estimates under review until the extent of the capital requirements are known.

“Blacks’ lender may well be unsettled by the scale of the interim losses and poor current trading as it enters its seasonal working capital peak,” said Peter Smedley, retail analyst at Charles Stanley Securities. It was “not the best backdrop for an equity raise,” he added. “In the run-up to Christmas, freezing cold weather will be their get out of jail free card.”

By mid-afternoon on Thursday, shares in Blacks had fallen nearly 3 per cent to 9p, having plunged 77 per cent in the past year.

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