JJB forced to pay World Cup penalty

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JJB Sports, Britain's biggest sports retailer, shocked the stock market yesterday with a calamitous profits warning which forced the shares down almost 40 per cent and raised questions about the company's management.

It blamed increasing competition in the clothing market and a negative impact from the World Cup for warning that its first-half profits would not match the £47.2m recorded last year. JJB said sales of World Cup-related merchandise had been strong, with the England kit selling particularly well. However, this had deflected sales away from other goods that would have attracted higher margins.

As a result, like-for-like sales in the 23 weeks to 7 July were up by only 1 per cent. The gross margin was also marginally lower than last year.

The company said that operating costs had risen, largely due to the 9 per cent increase in sales space. This prompted City analysts to question whether the company, which has 438 stores, had over expanded. The shares sank 119p to 192.5p on the news as analysts scaled back current year profit forecasts from £115m to £110m and profits for the following year by £15m to £125m.

JJB caused consternation in the retail sector this spring when it paid £42m for the discount retailer TJ Hughes. Experts said yesterday's profits warning fuelled suspicions JJB had acquired TJ Hughes because it knew its core business was running out of steam.

Others said there were now questions about the management, led by founder and chairman Dave Whelan and his son-in-law and chief executive, Duncan Sharpe.

Mr Whelan, a former professional footballer, founded the company with a single store in 1971 and still controls 26 per cent of the shares.

Nick Bubb, at SG Securities, said: "You would have thought the World Cup would have helped them. It's just awful."

JJB mentioned Marks & Spencer and Bhs as two companies that have been growing in sports clothing. M&S is due to increase its presence in the market with a new David Beckham range in September. It has also bought a sportswear company recently from former Olympic athlete, Brendan Foster. Rival high street retailer JD Sports, which recently bought the First Sports chain from Blacks Leisure, has cut some prices by as much as 20 per cent, though JJB said it was fighting back. "We are being quite aggressive in our pricing policy," Mr Sharpe said. "Business is tough out there."

JJB is one of several companies being investigated by the Office of Fair Trading on the prices of replica football kits.