ANALYSIS: JJB’s fragile recovery still under threat
The full-year figures unveiled by UK retailer JJB Sports today (27 May) make for predictably grim reading – but it’s something of a miracle that the company is still around to give a trading update at all.
On more than one occasion over the past 12 months, all bets were off and most observers felt it was just a matter of time before the company gave up its fight for life and expired into administration.
Instead it lingers on, in fragile health and only still breathing thanks to the lifeline of a Company Voluntary Arrangement (CVA) and renewed financing.
So, if the full-year trebling of adjusted pre-tax losses is a reminder of JJB’s past woes, the company’s refreshed board must hope that early trading for this fiscal year gives a hint of its future.
For the 16 weeks to 23 May, like-for-like revenues increased 7.5%. Not enough in itself to get the Champagne corks popping in the boardroom, but factor in a snowbound February (like-for-likes down 2%) and a buoyant May (up 19%) and some glimmers of hope begin to emerge.
Total revenues were down 15%, but that disguises the true trading picture, impacted as it is by the timing of the administration of OSC and Qube, as well as the disposal of the company’s leisure division.
Gross margins show a healthy upturn – climbing 6.8 percentage points to 43.6% – and, perhaps even more importantly, stock levels are more robust, up GBP46m (US$67m) to GBP105m at 23 May.
Two factors will be crucial if JJB is to complete the finest recovery since Lazarus.
First – the football World Cup: the company will be praying for a strong performance from the England team and, more generally, a tournament which captures the public imagination (and appetite for replica shirts, boots, flags, etc).
Second – the revamp of JJB’s stores. As new chairman John Clare rightly observes: “It will take time to encourage customers back into our stores and rebuild our credibility.”
Put simply, JJB has to give the British public a good reason to forget the bad experiences of the past and return to its stores, so the new formats trialled this summer will have to work – and work fast – to ensure future trading success.
The appeal of the company’s stores, and making the most of the World Cup (pace England’s fortunes), are within JJB’s control; but the impact of broader economic conditions is not.
Tax increases, rising unemployment and the threat of a double-dip recession are still casting a shadow on the UK retail sector as a whole – and they could yet threaten JJB’s remarkable recovery and trigger a relapse for the still sickly patient.
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