The toughest June for retailers since 1986 has taken its toll on JJB Sports, as a slide in sales prompted a profit warning and questions over to what extent the much-vaunted recovery strategy would help it see off a protracted downturn.
The deteriorating outlook led Panmure Gordon, the sportswear retailer’s broker, to cut its pre-tax profit forecast for the year by 19 per cent, after like-for-like store sales in the 12 weeks to last Sunday slid 2 per cent.
JJB said store improvements, management training and a staff incentive scheme had led to a marked improvement from the 6.5 per cent drop in the prior 13 weeks.
Analysts agreed they had helped but noted a weaker comparative performance from last summer flattered the apparent improvement.
Moreover, the retailer worried some by failing to provide an update on the gross margin. JJB left “some critical questions unanswered”, said David Stoddart, analyst at Altium. “Clearly, the cost base will have been affected by changes to space and acquisitions.”
Like Sports Direct, its peer founded by Mike Ashley, JJB has been hurt as consumers rein in spending and more recently from the home nations’ absence from the recent Euro 2008 football championship.
David Madeley, finance director, said: “We’ve done OK in Q2 but we haven’t made up as much ground as we thought we would …These type of recovery programmes take two to three years to really take shape.”
The company, which is replacing stores that Roger Lane-Smith, chairman, described as being “like a third-world country”, could now curtail its dividend. Gearing is expected to double to almost a fifth as a result of the increased capital expenditure.
Mr Madeley said dividend policy was “not at the forefront” of management’s thinking, but added: “Dividend will be maintained subject to overall levels of profitability, capital expenditure and working capital requirements. It’s a balance; you have to manage a business within the constraints. The dividend we maintain is pretty generous.”
JJB’s health and fitness clubs, which account for about 10 per cent of sales, enjoyed a 5.9 per cent increase in the period.
Chris Ronnie, who was appointed chief executive last year, owns 29 per cent of the company with Exista, the Icelandic investment group.
Shares in JJB fell 1¾p to close at 88¼p.
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