Embattled JJB fighting for survival

THE future of embattled sports fashion retailer JJB could be determined on Tuesday as it attempts to convince investors there is a viable future without JD Sports.

JD announced on Friday that it had withdrawn interest in a bid for its smaller rival and JJB must now produce a compelling statement of intent as to how it can draw a line under its woes. The firm needs to persuade bankers, shareholders and its store landlords that it can return to profitability if they back moves for it to enter its second company voluntary arrangement (CVA) in as many years.

"It has to be convincing," said John Stevenson, retail analyst with Peel Hunt, "and it will have to be fairly comprehensive."

JJB is due to put more flesh on the bones of its rescue plan, which is being put together by chief executive Keith Jones and new chairman Mike McTighe, a former turnaround specialist at Cable & Wireless.

Survival hinges upon a number of factors, including an agreement for lower rent payments to landlords, and yet another cash-call to shareholders. JJB's credit facilities with Bank of Scotland are also under strain.

The retailer - which holds the exclusive rights to distribute Rangers merchandise - has already said it will close 45 of its 245 stores, while the fate of a further 50 are under review. Other structural savings, such as cuts at the head office, are also expected.

At the same time, JJB must also come up with a strategy to increase sales at its remaining outlets. This could involve plans to introduce some sort of new store format.

Latest like-for-like sales figures from JJB were 11 per cent lower than in the previous year, while margins have also been under pressure because of cut-throat competition on the high street. Analysts note that JJB is unable to compete directly with discount specialist Sports Direct, yet also lacks the exclusive merchandise offers to pull in shoppers willing to pay more for particular branded gear.

JJB's wider financial woes date back to the reign of former chief executive Chris Ronnie, who was ousted in March 2009 for gross misconduct involving a controversial share sale. Subsequent cash flow problems led to stocking disruptions as suppliers tightened their terms, further hampering overall sales.

More recently, JJB had to tap shareholders in an emergency 31.5m cash call this past Christmas Eve, which in turn postponed demands by its bankers for a test of the company's debt facilities. Investors, who include the likes of the Bill and Melinda Gates Foundation, have pledged further support though it remains uncertain whether they will stretch to anything like the 110m JJB has previously indicated it would need to continue trading.

JJB has made clear that it will go into administration without the benefit of a CVA. Under a CVA, landlords would get about one-quarter of every pound they are owed, versus just 1p if JJB goes bust.

Even if the company does manage another Houdini act of survival, Stevenson at Peel Hunt said JJB was still a long way from recovery.

"By taking out costs you can accelerate that process, but it could still take two or three years to get back to profitability," he said.