JJB investors could be wiped out, warns City

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The Independent Online

City analysts have warned that JJB Sports faces a battle for survival after the beleaguered retailer said it was likely to breach banking covenants in January and that trading conditions remained "extremely challenging", exacerbated by the snowy weather.

In an unscheduled trading update after a profit warning only last month, the 250-store chain reiterated that it was "exploring further business restructuring options and considering alternative sources of finance". These are thought to include a potential debt-for-equity swap with its lender, Lloyds Banking Group, or raising fresh funds through a share placing.

Shares in JJB – which staved off collapse last year with an insolvency procedure to ditch 140 underperforming stores – tumbled by 1.04p, or 18 per cent, to 4.74p.

Peter Smedley, an analyst at Charles Stanley, said: "The statement prompts us to think it is now increasingly plausible that there could be no equity value left for shareholders." John Stevenson, at Peel Hunt, said: "An equity fundraising will be needed to secure the business in the new year, we believe." JJB raised £94m last year in a cash call.

On 11 November, JJB warned that profits margins were being hit by hefty price cutting. Yesterday it said its like-for-like sales "remained below expectations". JJB currently has promotions in its stores offering 20 per cent off bikes and 50 per cent off footballs. The troubled retailer has also been hit by a price war being waged by its rival, Sports Direct.

In light of its trading difficulties, JJB said it was likely to breach certain banking covenants, believed to relate to underlying earnings, on its £25m revolving facility provided by Lloyds Banking Group's Bank of Scotland. On a rare positive note, JJB said sales and margins in its six new format stores were 11 per cent and 21 per cent higher, respectively, than the rest of its stores.

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