UPDATE: JJB Sports' Shares Plunge On Loan Breach Fear
Shares in U.K. sportswear retailer JJB Sports PLC (JJB.LN)
plunged nearly 20% Thursday after the company said it expects to
breach covenants on a bank loan, prompting analyst speculation that
it may need to tap shareholders for more cash.
In an unscheduled trading update, JJB said sales since Nov. 11
have been below expectations and will likely only get worse because
of the bad weather across the U.K.
The full-year earnings outlook is "uncertain," JJB said, as
December is one of its peak trading months.
It now expects to breach of covenants associated with a GBP25
million facility agreed with Royal Bank of Scotland Group PLC (RBS)
when the covenants are tested in January.
This comes after it passed covenant tests at the time of the
company's half-year results, when it said RBS had agreed not to
test its earnings before interest, taxes, depreciation,
amortization and rentals, or EBITDAR, covenant in order to give it
the flexibility to implement its turnaround strategy.
JJB is now in "constructive discussions" with the bank in
relation to the covenants and its financing needs.
It is also exploring further restructuring options and
alternative sources of finance.
JJB's management team weren't available for interview, but a
company spokesman said another fundraising, following the group's
GBP100 million equity raise late last year, wasn't being ruled
"It's an option but they're looking at various options," he
said. Potential restructurings are also on the cards.
At 1057 GMT, JJB's shares were trading 1 pence, or 17% lower, at
5 pence, underperforming a flat FTSE All-Share general retailers
Its disappointing trading update follows a cautionary statement
last month, when the Wigan-based retailer said increased promotions
like its September "Spend and Save" deal had dented margins and
At that time, JJB said full-year earnings would hinge on its
performance during the important pre-Christmas and New Year sale
"The financial position of the company remains difficult and
will probably not be helped by a more promotional Sports Direct,"
Seymour Pierce analyst Kate Calvert told clients in a note.
Sports Direct International PLC (SPD.LN) is one of JJB's biggest
rivals, also focusing on the discount end of the market.
Analysts are bleak on JJB's prospects, with Singer Capital
Markets' Mark Photiades and Peel Hunt's John Stevenson both
expecting another cash raise in the new year.
The one plus point in JJB's statement Thursday was news that
sales from its six revamped stores are up 11% on the company
average, with the margin performance also better in these
But Ed Woolfitt, Head of Trading at Galvan Research told
clients: "Until a White Knight rides in to save the day and rescue
the business, Galvan Research believes it is unlikely that the
retailer will survive in its present form."
-By Hannah Benjamin, Dow Jones Newswires; 44-20-7842-9298;