Snow-hit JJB may breach bank covenants

Oh Lordy! More bad news for Wigan-based JJB, the first of no doubt many retailers to claim a weather-related sales hit. It seems the cold weather has dampened shoppers’ ardour for the stores range of polyester-heavy sports clothing to such an extent that the firm is in danger of breaching its bank covenants next month.

The firm, which only narrowly escaped administration a year ago by cutting a deal with its landlords and raising £100m from investors, had already persuaded its main lender, Bank of Scotland, to waive a covenant test in September. It’s been doing its level best to reverse last year’s £65m loss, mainly by spending heavily on promotion to try and lure the punters in, but it doesn’t seem to be working - like for like sales growth slipped to 11.5% in the third quarter, down from over 14% in the first six months of the year. It’s now predicted to make a loss for the year of £47m, up on earlier forecast of £42m.

Its shares fell over 20% on the news, bringing the year’s fall to date to nearly 80%. JJB’s market cap is now around £31m, a far cry from the glory days of 2001 when it was up at some £1.2bn. Ouch. The firm says it’s in ‘active negotiation’ with lenders to sort the problem out, which relates to a £25m revolving loan facility, and is also looking at alternative refinancing means. Trouble is, after last year’s cash call (much of which went to pay down debt), investors may have lost their appetite for JJB and its options are likely to be strictly limited. If it can’t persuade its banks to hang on in there it will have to look to existing shareholders for a special loan.

JJB’s chief exec Keith Jones, who has only been in post since March, is widely held to be doing all the right things, revamping stores and repositioning the chain as a proper sports store. But the fears are that it’s all been left too late, and that JJB may simply run out of money before Jones and his team have had a sporting chance to really turn the business around…