Profits dip after group struggles to cut losses on outdoor clothing chain bought for £20m
Fashion group JD Sports said the turnaround of Blacks Leisure would hit profits this year as the outdoor clothing chain was in a dire condition. JD paid £20m for Blacks in January and its executive chairman Peter Cowgill said when it got the keys from the administrators, the retailer was in a "very fractured state".
"We inherited a limited and unbalanced stock position, with a particularly severe lack of stocks in many high-performing lines," he said.
Profits at JD fell 14% to £67.4m on £1bn sales in the year to 28 January. In the three weeks that Blacks was part of the group, it contributed losses of £2.2m on sales of just £6m.
Cowgill blamed the problems at the outdoor specialist on stock shortages but also criticised the "excessively large and over-rented store portfolio as well as a disproportionate central cost base". JD's buyers are spending a "significant amount of time" speaking to suppliers of the key brands to get stock flowing again, he said. It has already shut 81 loss-making stores, leaving it with 215 subject to negotiations with landlords.
"Ultimately, determining the size of the long-term store base will depend on store performance when set against newly negotiated rents and associated property costs," said Cowgill, who is also looking to cut head office and other supply chain costs. "We do not expect these savings to be wholly realised until spring 2013 and so, whilst we expect a modest recovery in the second half, we now anticipate that Blacks will be earnings-dilutive in the current year," he said.
JD is best known for the eponymous sportswear chain which targets 18-to-24-year-olds with fashionable brands such as Adidas Originals, Converse and Fred Perry. Like-for-like sales were down 1.2% as the spending power of its young shoppers was dented by record levels of youth unemployment. Cowgill said the forthcoming summer of sport would provide a shot in the arm to consumer confidence but remained cautious about the outlook. for trading He said that margins would remain under pressure as shoppers continued to seek bargains and sales. Shares closed down 1% at 791p.