The chairman of JJB Sports has warned it could take up to five years to turn around the beleaguered sports equipment retailer as it posted full-year losses of £181m.
The dire results had been expected by the City, as JJB was only saved from collapse by its creditors approving a controversial insolvency procedure – its second in two years – in March and a £65m fundraising backed by its four biggest shareholders the following month.
Under the company voluntary arrangement (CVA), the 200-store chain plans to close 43 stores by next April, of which 18 have already shut, plus a further 46 by April 2013 if their performance does not improve.
Mike McTighe, the chairman of JJB, said: "The restructuring of JJB will not be easy or quick and will most likely take three to five years. The retail environment is challenging, will remain so for some time and we face intense competition. But the work undertaken over the past six months, together with the crucial support of all our stakeholders, have given JJB a chance to survive and ultimately to prosper."
However, he said "this is the beginning of the hard work and not the end".
That said, doubts remains in the industry about whether JJB can truly recover and compete against the market leader, Sports Direct, which has grown profits consistently over recent years. This is despite JJB's four main shareholders – Harris Associates, Crystal Amber, Invesco Asset Management and the Gates Foundation – pumping £196m into the retailer through three fundraisings since October 2009.
JJB suffered a pre-tax loss of £181m for the year to 30 January, compared with £68.6m over 53 weeks in 2009/10.
Of this loss, however, £96.2m was for a non-cash accounting charge relating to a writedown on the Sports Division business that JJB bought from Sir Tom Hunter in 1998.
The Wigan-based chain's profits were also hit by a 4 per cent fall in gross margins to 34.4 per cent, resulting from "poor stock packages" in its stores in the second half that forced JJB to discount heavily to clear products.
Total sales at JJB fell by 3 per cent to £362.9m but like-for-like sales on stores open at least a year rose by 5.9 per cent.
Keith Jones, the chief executive of JJB, laid bare its troubles. He said: "The current offer of product, service and customer experience in the majority of our stores is far from reflecting this opportunity. We have to change to meet our customers' expectations and make a clear step change that ultimately differentiates us from our competitors. This process has now very clearly begun in earnest."
Mr Jones added: "The transformation required is significant but entirely achievable."
JJB is pinning its hopes on basic "retail disciplines", including stock selection and replenishment, improving customer service and sourcing new product ranges. Above all, it needs its store refurbishments to improve sales, following an investment in six new format shops that have delivered gross profit 30 per cent higher.
Using the funds raised, JJB aims to refresh or refit 150 stores this financial year, with a further 50 targeted for 2012/13. The retailer has also hired two non-executives, Richard Bernstein and Lawrence Christensen, the former director of Sainsbury's.
Caroline Gulliver, an analyst at Execution Noble, said: "Distress in retail can be painful and long drawn out where structural issues overwhelm the best efforts of management. In JJB's case, history suggests that the specialist sports retail market is actually a lot smaller than most thought."