JJB Sports is axing 800 jobs and closing 72 of its shops to try to improve performance after profits dropped 28.5 per cent last year.
But analysts have maintained a "buy" on the company's stock, and the 7p final dividend has been held level, indicating confidence in both the investor community and the company itself that the radical measures constitute a potential cure for the underperforming sportswear and fitness club chain, rather than a symptom of its ongoing malaise.
JJB's revenue in 2007 came in broadly consistent with the year before at £811.8m. But adjusted profit before tax fell to £33.8m from £47.2m, and earnings per shared dropped by 23.4 per cent from 14.21p to 10.89p. The company has been on the slide for some time. Five years ago it was making profits of £97m, almost triple its current performance. And the share price has lost more than 60 per cent since its 302.25p high in May last year, closing at a modest 117.25p yesterday even after the day's 3 per cent rise.
Yesterday's shake-up is the result of an operational appraisal conducted by Chris Ronnie after his appointment as chief executive last summer after JJB's founder David Whelan sold his 29 per cent stake in the company and stepped down from the board.
"The decision to close the 72 stores is based on the fact that they are non-profitable and are a huge strain on the business," Mr Ronnie said.
Although the programme is costing the business £25m – taking the final profit after exceptional charges figure to £11.3m, more than 70 per cent lower than last year – the rationalisation of a portfolio that includes both loss-making outlets and, in some cases, several shops on a single street, will have a significant impact on the bottom line. Of the overall redundancies of 1,200, some 400 will be re-employed in other JJB outlets.
Closing shops is not the only strand of Mr Ronnie's strategy. The group is also increasing the focus on own-brand products, including the recently purchased Champion and Travel Fox labels, which deliver a significantly higher margin. Plans for a training academy and staff incentive scheme are also designed to push up sales. And the re-fit of the Manchester Trafford Centre shop, which has led to double-digit revenue growth, is to be replicated across another 40 outlets over the course of 2008.
The health club arm was the best-performing part of the business last year, with revenues up 18.8 per cent to £66.3m, operating profits up 15.8 per cent to £17.1m and gross margins of 96.1 per cent. Another 11 centres will be added this year, taking the total to 60.
Roger Lane-Smith, the chairman of JJB Sports, said: "While we have identified a number of stores for closure, which will itself strengthen our remaining store portfolio, we are also investing to improve the quality of our stores and product with further store refits, the introduction of new products from our own brands and the implementation of staff training and incentivisation programmes."
Analysts responded positively yesterday. "Current trading is weak, but we maintain that this is one of the most interesting recovery stories in the sector at the moment. Look through short-term trading weakness and buy," said investment guidance from Dresdner Kleinwort.
JJB's job cuts news came in stark relief to financial results from its biggest rival – John David Group, which trades as JD Sports – the day before that bucked high street gloom with profits doubled to £35m. Although JJB's closures are not related to global economic conditions, the group's directors gave a cautious outlook for 2008 in January's trading statement and like-for-like revenue fell 3 per cent in the seven weeks to March. But the company may not be in a bad position in the face of the predicted slowdown.
Philip Dorgan, a retail analyst at Panmure Gordon, said: "It is not like JJB is a superbly managed business that can't think of any way to grow, or is under-performing but doing everything it can, so a recession will make its profits collapse. It has been under-per-forming for years and now has a new chief executive with lots of opportunity for improvements."
The company also announced yesterday that David Greenwood, the fin-ance director for 30 years, will step down at the end of the month, to be replaced by David Madeley, the commercial director.
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