Jjb Suffer Further Slide In Sales And Margins Which Are Causing Mounting Losses

JJB Sports, the struggling Wigan-based sports retailer, which resorted to a Company Voluntary Arrangement (CVA) to protect itself, has unveiled LFL sales down 17.7% for H1 to July 31st to underline the tough trading conditions at it's 202 stores on the high street.

Overall sales are down 22.6% from 184 million for H1 2010 to 142.4 million and margin has slipped from 42.2% to 35.8%, increasing the loss to 67.7 million.

JJB decided to close 43 unprofitable stores with a rent roll of 9.3 million as soon as possible, and has now closed 41 of which 7 have been returned to landlords.JJB also earmarked 46 stores with a rent roll of 12.6 million for closure between April 2012 and April 2013. JJB is paying 50% rent on these stores and is also seeking to extingish it's rates liabilities on them. The company has revised downwards the numbers of stores it is reinvesting in for refits to 114. JJB has renegotiated rents with all it's landlords to pay monthly rather than quarterly. As part of the compromise of the claim of the landlords within the CVA, JJB has agreed to the creation of a 2.5 million Compromised Lease Fund to affected landlords payable in 2013.

JJB has been kept going because of support from it's major shareholders, who have cipped in a further 65 million of new equity capital and Bank of Scotland. This capital will be largely eroded by these losses, but the company is releasing funds by running down it's bloated inventories. Whether it will get them in line with sales before it dies depends on it finding sufficient market as a serious sports retailer.

Shares in the firm, which have drifted ever lower all year, closed at 14.25p on Friday, which values the business at 41.8 million.

Gresham Down Capital Partners has calculated that there is more than 6.5 billion of commercial property for sale across Central London: around 5 billion in the City and 1.56 billion in the West End.

It estimates that a trend of banks selling or encouraging their borrower clients to sell will accelerate "with further stock being added from owners looking to take profit on purchases made within the past 2 years and from maturing loans within CMBS portfolios".

It is also predicting polarized markets between equity and debt investors, and that overseas investors - predominantly equity investors, who currently represent almost half of buyers in Central London already - will dominate the market.

On the outlook for debt buyers, Gresham Down says that the number of active lending banks has fallen from 25 to no more than 10-15.

Gresham calculates that there are 1.43 billion of investments under offer in the City and 1.08 billion in the West End. Investment turnover for the year stands at 4.17 billion for the City and 3.33 billion for the West End, an increase of approximately one third compared to 2010.

Gresham Down is strongly recommending that equity buyers focus on sales from buyers who have to sell. Vendors, on the other hand, are being told to focus on equity buyers rather than debt-based buyers, even though the bids are lower.

Average house prices in the UK will fall 5% next year, the first fall since 2008 and will not grow again until 2014 according to the Q4 UK Housing Market Forecast from Knight Frank.

Knight Frank sees transactional volume remaining at present subdued levels next year, but not returning to the 20 year avaerage level until 2016, while prices will not return to their 2007 highs until at best 2015 in London and at worst 2020 in the North West and Wales.

Average home values in London will fall 3.7% next year, the smallest decline anywhere in the U.K. Prime properties in the capital will rise 5% and homes in fashionable areas such as Knightsbridge, Mayfair and Kensington will be little changed in 2013 before rising 4% in 2014.

The London market has benefited from a weak pound and growth in global wealth portfolios, demand for international education opportunities and demand for safe haven assets on the back of recent geopolitical concerns, Knight Frank said.

A 5% fall in prices in 2012 will leave property values nearly 15% below their 2007 peak. In fact, even with the modest gains seen in later years, KF forecast that average house prices will not hit 2007 levels again until 2018.

In real price terms, the picture is even more subdued, especially in light of the recent high inflation which has eroded the modest price growth seen in the market.

House prices, adjusted for CPI inflation, have fallen by 21% since the peak of the market and, according to KF forecasts, by 2015 they will have lost more than 29% of their value. On this measure, prices will not reach their previous highs until 2028.

This correction is necessary, and continues the process of bringing house price/earnings ratios back to sustainable levels. The house price/earnings ratio hit a peak of 8 in 2007, far above the long-term trend of 4.5. KF say that while future affordability ratios will fall back from current levels, they will remain elevated above historical levels given the widening disconnect between supply and demand in the market, and KF forecast will run at 5.5, which requires a 31.25% fall.