Own Goal
If you thought England’s World Cup bid was a disaster, take a look at JJB Sports (JJB).
Shares plunged 20% after the troubled retailer warned it was likely to breach conditions of loan agreements with its bank. Sales have been worse than expected in recent weeks. Trading remains "extremely challenging" and is likely to deteriorate because of the bad weather.
The first lesson of investing in retailers is to avoid all those who blame the weather for their woes. If it’s sunny, no-one wants to shop. If it rains or snows, no-one wants to turn out. Funny, then, how some shops seem able to sell goods throughout the year.
Remember Blacks Leisure (BSLA), for whom the weather was never right. On second thoughts, it’s better to forget. It is also better to forget JJB Sports, especially if you took part in the £100 million rights issue in October last year. Get out and move on.
JJB Sports says it is in "constructive discussions" with Bank of Scotland over the future financing of the business. You don’t have constructive discussions with banks when you are down and out.
The crunch comes at the end of January, less than two months away. No doubt the bank will impose a financial penalty or two by way of a fee and increased interest payments. In the meantime worried suppliers will be demanding cash up front for further deliveries, putting more pressure on cash flow.
With the shares around 5p some gamblers may be tempted to think they can’t get any lower. Yes they can.
Snow Has Fallen, Snow on Snow
At least someone was ready for the snow. Kingfisher (KGF), owner of the B&Q do-it-yourself sheds, sold 3,000 sledges last week along with 4,000 shovels and 150,000 bags of grit. It’s an ill snowstorm that blows nobody any good.
It has placed an order for 10,000 sledges. Statistics over many decades show that a severe November, when the snow started falling, is no guide to how the rest of winter will work out. There are risks with retailing and there are no guarantees that the rest of the sledges will be sold.
Like the weather, Kingfisher trading tends to be patchy while expansion overseas, mainly in France, Poland and Russia but stretching as far as China, has not eradicated this pattern. If anything, there seem to be more contradictory influences than ever.
Let us not be churlish. Kingfisher’s third quarter profits of 240 million are up a not-to-be-sneezed-at 8.2% thanks mainly to the French depots, where like-for-like sales were 1.8% higher.
The shares rose 17p to 255p after the figures, edging above the 250p barrier that has proved to be a ceiling three times in the past year or so. I would not rush to buy above these levels but I do feel that the 200p floor which held twice this year will not be tested again.
If you enjoy a roller coaster ride, you could consider buying on any dips. If the shares continue to rise out of range, shrug your shoulders and carry on sledging.
Ashes to Ashes
For the past three years shares in Thomas Cook (TCG) have been converging on 200p and although they have been stuck below that level for several months they have held up fairly well.
Profits for the year to the end of September fell from £45.1 million to £41.7 million, thanks partly to the disruption caused by the volcanic ash cloud which now seems a distant memory.
Here is the problem for holiday companies. They are always at the mercy of the weather, one factor that they have no control over. If you had forgotten about the ash cloud, this week’s closure of Gatwick airport was a stark reminder of what can go wrong. Another downer this summer was the weakness of the pound, which made foreign holidays more expensive just as households here were struggling with the after effects of recession.
On the positive side, Thomas Cook has reduced costs through job cuts in management and back office positions rather than in sales staff, and through natural wastage rather than enforced redundancies. It hopes to sell 5% more holidays with 500 fewer staff.
At around 170p the shares look interesting. However, given the imponderables they are quite a gamble. If you take a chance and the sun sets on the shares, please don’t bother me on my deck chair next summer.
You Can’t be Serious
I have been prepared to give the coalition a fighting chance but this week’s news that public sector jobs are to be saved is deeply worrying – unless you are one of the people who has avoided the sack.
Instead of the 490,000 job losses forecast in June, or the 450,000 due to go under Labour’s pre-election plans, 330,000 civil servants will be disposed of over the next four years.
So either we originally planned to get rid of civil servants that we really needed to keep or we now intend to keep civil servants who are surplus to requirements. Higher savings from the welfare budget and stronger economic growth account for the change of heart.
I accept that the welfare budget needed tackling, particularly for the way it discourages people from working, but I feel very uneasy at people out of work being sacrificed to pay public sector wages. And I understood that getting people out of the public sector and into the productive private sector was to be the driving force behind the economic recovery.
Somehow I get the feeling that the saving of public sector jobs is just for political effect. Alas, the effect is to suggest that the Government is making it up as it goes along.
Rodney Hobson is a private investor writing about his own portfolio. The opinions expressed in this column are those of the individual, and not of Morningstar, and should not be construed as financial advice.
