Price war forces JJB Sports into dividend warning

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The Independent Online

JJB Sports sparked fears yesterday it was poised to slash its dividend after issuing its habitual post-Christmas profits warning.

A price war with Mike Ashley's Sport & Soccer chain forced JJB to massacre its profits margin in a desperate attempt to avoid haemorrhaging its market share. The result was a 2 per cent rise in like-for-like sales over the six weeks to 1 January, but at the cost of 400-basis points of margin at its stores.

Tom Knight, the chief executive, gave a strong hint that he would rather pour the group's cash into expanding its successful health club and sports store concept than funding its dividend. "The dividend is something that is up for grabs. I am not giving any reassurances," he said.

Analysts, most of whom had already downgraded their profit numbers, took a further knife to their forecasts after the company said profits would come in below expectations at between £32m and £36m. Up to one-quarter was sliced off this year's profits and the same again off 2006's by Matthew McEachran, at Investec Securities. Shares in the group fell 0.5p to 169.5p.

JJB, the country's biggest sports retailer, said its footwear sales fell 2.3 per cent during the 22 weeks to 1 January, despite its decision to throw cash at the problem. Across the group, which includes 31 health clubs, underlying sales slipped 0.4 per cent during the period, while gross margins fell by 320 basis points.

Mr Knight said: "We sent out a message [to Mr Ashley] that we are not going to be bullied." He predicted the clothing market had "bottomed out" but admitted the prospects for footwear in the year ahead was"unknown".

He remained upbeat about the group's predicted sales for fitness equipment and replica shirts, which comprise one-third of JJB's business, especially coming into a World Cup year.

For JJB, 2005 was a catalogue of disasters that kicked off with a profits warning. There was no word back from the Office of Fair Trading on its appeal against a fine for price-fixing replica football kits. The brightest light for the company's founder and biggest shareholder, David Whelan, shone outside JJB when his Wigan Athletic was promoted to the Premier League. To free-up more time to devote to his passion. and limit the speculation on whether he would sell his stake to fund football-related spending sprees, Mr Whelan stepped down as JJB chairman in the summer.

Amid intense competition in the clothing and footwear markets, JJB was forced to play its promotional hand very early, cutting its prices from last October. This boosted sales in the second half but at a "materially lower" gross margin.

Meanwhile, at its health clubs arm, revenue was "entirely satisfactory". Mr Knight has staked the group's future on its health clubs, which it sites "for free" over an out-of-town JJB superstore. He hopes to continue opening 12 a year, but concedes this will need cash.