Sports group JJB has issued a profit warning after like-for-like sales failed to meet expectations.
Although like-for-likes in the period from September 27 to November 7 increased 13.1%, the advance was lower than anticipated after taking into account the intensity of promotions over the period.
Promotions have taken their toll on gross margins. JJB said they had been “significantly affected” and dropped to 33.8% over the period, bringing the year to date margin down to 40.6%.
JJB warned “current trading conditions are having and will continue to have a negative impact on expectations for the full year.”
Year to date like-for-like sales are up 13.4% compared with the same period last year. Net debt at November 7 had risen to £16.6m - analysts expect that to be a peak for the company.
Analysts downgraded their forecasts for JJB. Broker Singer reduced like-for-like sales growth forecasts for the second half of the year to 12.5% from 14.4% and margin expectations to 37.7% from 41.6%.
Singer analyst Matthew McEachran warned that cash flow was critical for JJB. He forecast losses would widen from £31m to £40m, which raised the likelihood of having to raise additional cash.
He said: “Valuation metrics seem irrelevant currently as JJB fights to retain cash for critical reinvestment or, worse, to avoid a covenant breach next year. With this backdrop the shares remain under pressure.”
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