JJB Sports Plc, the UK sporting goods chain, revealed that it is seeking further funding, just three months after receiving a £30 million (U.S. $47m) cash injection in April. The funding search comes as results have deteriorated in recent months. The company also indicated that Bob Corliss, former head of The Athlete's Foot franchise, was appointed as deputy chairman/chairman.
In a statement, JJB Sports noted that as forewarned on July 9, since the beginning of April the Group "has experienced a deterioration in trading performance against management expectation, particularly during May and June owing principally to poor sales of football replica kits and product associated with the European Football Championships, exacerbated by the poor early summer weather. Consequently, as previously indicated, sales and cash margins have fallen materially short of expectations."
Group like for like sales for the 24 weeks ended July 15 decreased 8.7 percent and cash margin decreased by 16.6 percent. As at 18 July 2012 net bank debt was £17.7 million against banking facilities of $25 million. In addition to the net bank debt of £17.7 million as at 18 July 2012, the Group has also drawn down £1.1 million under the trade loan facility
Refurbishment Program
The Group has refitted 5 stores this year which have shown an increase in sales and cash margin compared to the rest of the core estate of 22.0 percentage points and 23.4 percentage points respectively in the post refit period. JJB added, "While the results of the refurbishment program to date have been encouraging, in light of the deterioration in trading the Board is reviewing the timing of the refurbishment program, while also continuing to work with its key strategic partners to refine the refit design and scope."
Impact of trading on future financing
At the time of the publication of its audited results for the 52 week period ended January 29 January 2012 on April 4 the directors "recognised that there were material uncertainties facing the business which included the ability of the Group to continue to implement its business recovery turnaround strategy in light of the macroeconomic environment and the Group’s stock profile.
These factors were seen as critical to the achievability of the Group's business plan, and were vital in maintaining sufficient headroom on its working capital facilities and financial covenants, but also important in determining the additional funding which had been expected to be required in the first quarter of 2013.
In light of the deterioration in trading, the Directors have sought to implement a combination of management initiatives, which were identified in the 2012 Results, and have been successful in mitigating the trading and cash shortfall to a certain extent. However these actions have not fully mitigated the shortfall. As a consequence, and in light of the continuing poor macroeconomic environment, the level of future headroom on working capital facilities and financial covenants will be significantly reduced in the short and medium term. This is likely to accelerate the timing of the additional funding required, which is dependent upon the trading performance of the business and the successful implementation of the management initiatives. Given the potential requirement to accelerate funding to implement the turnaround, the Group is in discussions with its strategic partners."
In conjunction with these discussions, Bob Corliss, who was appointed as Deputy Chairman/Chairman elect with effect from 9 July 2012, is working with the management team to review ways in which the group's trading performance can be improved both in the short and medium term.
Corliss stated: “There is a lot of work to do, and we have hit the ground running. We are continuing to work collaboratively with our business partners to address the challenges faced by JJB. I am excited to work with a brand that has a strong heritage in such an important market.”
Corliss had been CEO and owner of the retail chain The Athlete’s Foot. He sold the business to NexCen Brands in 2006. Prior to that he owned a company called Infinity Sports, which eventually sold the Bike Athletic brand to Russell Athletic. He was the owner and CEO of the Herman’s Sporting Goods chain before that, presiding over the company’s turnaround and sale.
JJB is owned 47 per cent by fund manager Invesco and 29.5 per cent by Harris Associates. The Bill & Melinda Gates Foundation owns another 5 per cent and Dick’s Sporting Goods, the US retailer, owns 3 per cent.
In April the group announced that Dick’s Sporting Goods was investing £20 million in the company in exchange for its 3 percent stake and a seat on the board.
Dick’s also secured the right to buy £20 million of convertible loans next year that would take its shareholding to 61 percent. Other shareholders such as Invesco put up another £10 million. JJB said then that trading had to recover during the summer for this additional funding to be sufficient.
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