The situation worsened in the first half for Blacks Leisure Group, as sales declined and losses widened for the British outdoor and sporting goods retailer.

Nevertheless, the group's new management, led by Julia Reynolds, who joined the company as chief executive on Aug. 1, sees clear potential for a turnaround but announced the need for additional funding, which could involve a recapitalization of the business.

After the release of the group's results, the brokerage Numis Securities downgraded the stock to sell from buy.

In the 26 weeks to Aug. 27, the group booked a 6.6 percent decline sales to £81.1 million (€94.3m-$129.8m) from £86.8 million (€101.0m-$139.5m). On a comparable basis, the fall reached 7.2 percent.

In the meantime, the gross margin slipped to 43.7 percent from 48.8 percent a year earlier due to the need to clear excess stock. The group recorded a loss before tax from continuing operations of £16.0 million (€18.6m-$25.6m) compared with a £7.2 million (€8.4m-$11.6m) loss a year earlier. The results do not include the board sports business, which has been discontinued.

The company said that the strategy and business review undertaken by Reynolds is over and a new plan is being prepared and should be completed soon. The findings of the review are that the group's retail banners Millets and Blacks have to be repositioned to achieve greater differentiation.

It sees significant opportunities in developing own-label merchandise to improve margins, especially for Millets. The group also sees greater potential in online retailing.

The management wants to refurbish existing stores and has no plans to increase the network. Store openings will be considered only to relocate a store to a better location with a minimal cash investment. At the end of the first half, the group had 298 stores, down from 317 a year earlier, comprising 195 Millets, 98 Blacks and five Freespirit branded stores. The Freespirit stores have since been converted to outdoor formats.

The company said that historically it has held too much stock and has been slow to identify and clear slow-moving and end-of-season lines. Stock levels have been reduced to more normal levels of cover and inventories will be more tightly managed in the future. The buying and merchandising function has been strengthened by the hiring of senior executives.

The group said that it had £28.5 million (€33.1m-$45.6m) in inventories at the end of the first half, compared with £39.3 million (€45.7m-$63.2m) a year earlier.

Since the end of the first half, Blacks Leisure has continued to suffer from a difficult business environment and comparable store sales have declined by 14.2 percent, while margins are about 3.0 percent lower than a year earlier.

The group said it will need additional funding in order to execute its strategic plans. Its board is considering financing options, including strengthening the capital structure. It also has “reasonable expectation” that the group will be able to continue to exist for the foreseeable future.

The company has announced the appointment of Peter Williams as non-executive chairman on a permanent basis. Williams had been named interim chairman after David Bernstein resigned in August.

In releasing its financial results, the group said it was in the process of recruiting a new financial director after Marc Lombardo announced in September. that he was going to resign after December. Shortly after the presentation of the results, Blacks announced the appointment of his replacement on an interim basis: Dominic Lavelle will work together with Lombardo until the latter's departure in December, bringing in 15 years of experience in the retail sector. He has been financial director with companies such as Allders, Oasis Stores and Laura Ashley Holdings.

Shortly after the release of the figures, some shareholders stepped in or increased their positions with Blacks. Spreadex Limited has reached or crossed the threshold of 7 percent of the company's equity, while Commerzbank, one of Germany's leading banks, has expanded its voting rights to more than 6 percent. Spreadex is a British company providing services in sports, casinos and financial spread bets.