JJB Sports Plc, the unprofitable U.K. sporting-goods chain, plans to raise at least 31.5 million pounds ($48.7 million) in a share sale to help it survive after a sales recovery was halted by Britain’s snowy weather.
JJB rose 24 percent in London trading after the Wigan, England-based company said the new shares will be sold at 5 pence each, more than yesterday’s closing share price of 4.3 pence. The plan has the support of JJB’s main shareholders, while the company’s lender, Bank of Scotland, has agreed to waive a January test of banking covenants.
JJB is seeking emergency funding after snow kept shoppers at home and a shortage of inventory at some stores caused sales to miss company forecasts. The money won’t meet “medium- and longer-term working capital requirements,” which the board will address after it finishes business plans, the company said. Chairman John Clare will step down and be replaced Mike McTighe, a former head of global operations at Cable & Wireless Plc.
“The scary thing is that even today’s placing will only tide JJB over for a few months, and we suspect that the key shareholders supporting JJB are simply throwing good money after bad,” said Nick Bubb, an analyst with Arden Partners who has no recommendation on the stock. Suppliers want to keep JJB in business to avoid Sports Direct International Plc dominating the U.K. market, Bubb wrote in a note to investors.
Clare, a former head of U.K. consumer-electronics retailer Dixons Retail Plc, will leave immediately. JJB needs a chairman with restructuring skills to complement the retailing background of CEO Keith Jones, Clare said in today’s statement.
Harris Associates LP, JJB’s biggest shareholder with 19 percent, will invest 11.9 million pounds in the fund raising. The retailer also expects investments of 4.5 million pounds from Crystal Amber Fund Ltd., 11.6 million pounds from Invesco Perpetual, 1.5 million pounds from the Bill & Melinda Gates Foundation Trust and 2 million pounds from GoldenPeaks Capital.
The combined shareholdings of the five investors could rise to 71.7 percent from 44.3 percent after the placing, according to Katharine Wynne and David Jeary, analysts at Investec Securities. They have a “sell” rating on the shares.
Board roles will be offered to some of the investors.
JJB shares rose 1.04 pence to 5.34 pence in London, paring the stock’s decline this year to 79 percent.
Sales at stores open at least a year fell 15.7 percent from Nov. 8 to Dec. 19, JJB said today, while gross profit margins narrowed to 35.4 percent from 45.3 percent a year earlier.
Sports Direct said on Dec. 16 it expects to meet full-year earnings forecasts as it sold more cold-weather clothing.
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