UPDATE 1-JJB Sports sees profits up once old stock cleared

(Add CEO comments, background, analyst comment, share price)

By Mike Elliott

LONDON, Jan 14 (Reuters) - Britain's JJB Sports Plc (JJB.L) expects profit growth to resume next year once the overhang of old stock, which hit profit in the run-up to the key Christmas period, was cleared.

"We're certainly looking for a profit increase in 2008," CEO Chris Ronnie told reporters on a conference call.

Earlier, Britain's second-biggest sports retailer warned profits before exceptionals in the second half of its financial year would be "slightly below" the 27.4 million pounds ($53.62 million) achieved in the same period last year.

JJB made a profit of 8.3 million pounds in the first half.

"We certainly won't be making quite as much (profit) as we were expecting to make when we last reported at the end of November," Finance Director David Greenwood told reporters.

According to the average forecast of nine analysts given to Reuters Estimates the company had been expected to report underlying full-year pretax profit of around 36.5 million pounds, down from 45.9 million last year.

"Today's news is clearly disappointing and we are placing our recommendation under review," Numis analysts said in a note, adding they were downgrading their top of the range profit forecast from to 33.2 million pounds from 40.3 million.

Shares in JJB Sports, which have underperformed the UK general retailers' index by around 34 percent in the past year, were off 1 percent at 99 pence at 0923 GMT, valuing the company at around 236 million pounds.

Seymour Pierce analyst Andrew Wade cut his profit forecast for the current year to around 31 million pounds. "With the gloomy consumer outlook and the turnaround at JJB set to be a slow process, this looks fair," Wade said in a note.

SALES DECLINE

JJB said in its trading update that like-for-like revenue for its retail stores and health clubs had increased by 2.2 percent in the 23 weeks to Jan. 6. Excluding health clubs, the like-for-like sales growth for its 384 stores was 1.9 percent.

Ronnie said the reason for the lower profits in the second half was mainly due to the need to clear old stock and that he was confident the company would start the new year with "fresh" stock, but he remained cautious about the retail environment.

"We are concerned about 2008," Ronnie told reporters. "I think it's a time where we've got to be quick on our feet and be a lot more reactive as a business". Combined gross margin -- a measure of profitability -- increased by around 200 basis points over the 23-week period, but over the Christmas period of six weeks to Jan. 6 it was around 400 basis points below that of the same period last year.

This reflected the decision to clear old stock and was "only partly from the current economic landscape," JJB said, adding it was determined to start its new financial year with fresher stock on which stronger margins could be achieved.

JJB, which sells items such as soccer kits to bikes and golf equipment, was recently hit by the England soccer team's failure to qualify for the Euro 2008 finals.

Ronnie said orders for new England kit "will be considerably less than we've ever ordered before" because of the team's failure to qualify and also because JJB feels the design of the new England away shirt "isn't as strong as it could have been".

(Editing by David Cowell)