JJB Sports puts itself up for sale

Aug 30, 2012

Retailer warns investors they might see their stakes wiped out due to a high level of debt

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STRUGGLING sportswear chain JJB Sports has put itself up for sale amid deteriorating sales and a failure to raise enough money to fund a turnaround.

Wigan-based JJB warned investors that its shares might be rendered worthless by any rescue deal as the debt owed by the company, which stands at around £36.4m in total, is too great.

The retailer, which has 4,000 staff and 180 shops across the UK, blamed poor weather and weak demand for replica football kits during the European Championships for its lacklustre sales, reports the BBC. Competition from discount sports chain Sports Direct has also affected JJB's profits.

In April, the company received a £20m cash injection from US retailer Dick's Sporting Goods, alongside £10m from existing shareholders, but the investment was not enough to boost profits.

JJB had intended to use the funding for an overhaul of 60 of its stores in 2012 and 2013. Trials for the new shop formats had been encouraging and improved sales had been predicted.

But in July, JJB announced it would need additional funds for the refurbishment programme sooner than expected as poor trading had continued.

Dick's Sporting Goods then revealed it was writing off the entire investment, stating JJB's performance had “materially deteriorated from its expectations”.

JJB issued a statement today that said it had continued talks over fund-raising and the "restructuring of its store portfolio" in an attempt to improve trading.

"However, following these discussions, the directors do not believe that the company will be able to raise the level of funds required to implement the turnaround," the company said.

"As a result, the board has decided to conduct a formal sale process of the company."

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JJB's problem is threefold:
1. It's merchandise offer is pathetic. JD Sports and Foot Locker (and smaller boutique sportswear chains like Size?) have exclusivity deals with Nike, Adidas etc for the latest and most desirable gear which trendsetting people actually want, whilst JJB is left with the dregs.
2. On what remains, they can't make a decent margin on it because Sports Direct is selling the same goods cheaper and more aggressively.
3. There is an overall contraction in the amount of people who wear sportswear casually, whether that be due to fashion cycles or the stigma of wearing it in some cases. There just isn't a big enough market anymore to support three major chains I think.