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The outdoor clothing and equipment firm saw strong performances over the Christmas period from its main brands, with Blacks like for like sales growing by 5.4 per cent and Millets by 7.8 per cent. This also involved a lower level of price discounting than last year.

Declining sales 

Performances in the Boardwear brands - Freespirit and O'Neill - were much weaker, however, with like for like sales declining by 10.8 per cent over the six weeks to 12 January 2008.

In the 19 weeks to 12 January, which covers second half to date, like for like retail sales were 1.2 per cent down with total retail sales falling by 1.5 per cent.

The Boardwear brands have experienced declining sales for most of the second half of 2007, reflecting the effects of a weak clothing market.

Blacks Leisure said in January that operating profits for the group for the full year, whilst ahead of last year, were likely to be below market estimates. 

Neil Gillis was appointed chief executive of the group in December 2007 with a clear remit to hold a strategic review and deliver a turnaround of the business.

One of several elements of this review was to challenge the rationale for retaining the Sandcity subsidiary as a separate entity.

Discrepancies 

Sandcity distributes and retails the O'Neill Boardwear brand in the UK and is based in Washington, Tyne & Wear.

It operates in the same market segment as Freespirit, which is also owned by Blacks Leisure, but it has retained a separate management structure, stand-alone administrative headquarters and its own distribution centre.

A preliminary review was initiated to assess the feasibility of merging the Sandcity subsidiary with the Freespirit operation thereby reducing the operating cost of the Boardwear businesses.

Blacks said that whilst this internal review was being conducted some discrepancies in the Sandcity management accounts began to emerge.

Following the identification of this potential issue, the group's auditors BDO Stoy Hayward were asked to assist in establishing the nature and extent of the problem.

Profit before tax likely to be lower than market estimates 

Those investigations are continuing but the group said it was now apparent that over at least the two financial years ending February 2008 the performance of Sandcity had been overstated by a cumulative amount of approximately £2 million, of which approximately £1 million appears to relate to the year ended February 2008.

The group (LSE:BSLA) said that profit before tax for 2007/08 and 2008/09 were both therefore likely to be approximately £1 million lower than market estimates.

Following the identification of these problems the board has taken action which it felt necessary in the circumstances and has suspended the managing director of the Sandcity subsidiary, Darren Spurling.

Spurling, 41, is a main board director of Blacks Leisure. He joined the board in May 2002 and has been O’Neill managing director since 1994.

He was previously a director of his family run chain of sports shops acquired by the Blacks Leisure Group in 1988.

The company said it plans to begin a process of consultation with the employees of the Sandcity subsidiary concerning Blacks' initial proposal to close the Washington headquarters and distribution centre and merge the business with the Freespirit operation in Northampton.

“It is important to stress that the recovery plan for the group is unaffected by these developments and that the board remain convinced that the medium term prospects for Blacks Leisure remain healthy. The business continues to trade in line with management expectations,” the board concluded.

Related links

• Blacks Leisure Group plc