JD Sports owner John David Group saw more than a fifth of its stock market value wiped out today as it admitted that integrating the First Sport chain was harder than thought.
The company said results for the year to 31 January 2004 would be “significantly” below market expectations – which had forecast profits of around £18m – after disruption to the group hit sales and margins.
The news sent shares tumbling by more than a fifth in early trading – down 36p at 141.5p.
The group bought the 209-strong First Sport chain from Blacks Leisure last year but has found the going tough with the process of integrating the acquisition with its JD brand disrupting business.
While it has already converted 102 of the stores to the JD brand and offloaded 15 branches, it has suffered from so-called cannibalisation with JD Sports and First Sport stores competing for business in close proximity in around 60 of the original locations.
There have also been difficulties with stock. As well as the initial difficulty of selling off old First Sport product lines it has found it hard to get stock levels for the enlarged group right.
While good stock choices have been made, the most popular lines have been disappearing off the shelves faster than they can be reordered.
In a statement ahead of its annual general meeting tomorrow chairman Roger Best said that like-for-like sales in the six months to 31 July were down 3% with a 6% fall in the First Sport division.
A spokesman said: “The view of the chairman is that it was a strategically sound acquisition, they have taken out the number two player in the sports fashion market, they have got over 100 locations where there wasn’t previously a JD Sports presence.
“But the management team has underestimated the impact on the John David Group that the First Sport acquisition has made.”
Best will tell shareholders tomorrow that where branches have been converted to the JD Sports fascia business has picked up and operational performance is expected to improve in the second half.
The group plans to offload another 18 branches in the second half of this year with 20 set to go next year.
References: EGi News 06/08/03
