JJB Sports slashed losses in its first half but investors took fright at volatile trading conditions since.

The retailer said it had made “steady progress” with its recovery programme but also detailed contingency options that could be initiated in the light of the roller-coaster environment and increased promotions.

Chief executive Keith Jones, who joined in March to lead a three-year turnaround, said JJB had benefited in the first half from an improved stock postion.

Availability of new stock helped deliver like-for-like growth of 14.4% in the half and contributed to a gross margin improvement from 33.6% to 42.2%. However, growth slipped from 18% in August to 6% in September. Jones said: “This demonstrates that sales performance has responded positively to certain promotional activities but in the current climate falls back without effective stimulation.”

JJB expects the trading environment to remain promotional. In order to allow that, and because of the volatile trading pattern, the retailer has agreed with lender Bank of Scotland that its EBITDAR covenant will not be tested in October, as originally planned.

Finance director Lawrence Coppock said contingency options - such as additional finance or the sale and leaseback of the head office - were precautionary and should reassure rather than worry investors.

He said Bank of Scotland was extremely supportive, as evidenced by its stance on the covenant test.

Jones said: “There’s nothing in our plan that suggests the need to look at those options.”

He said the most exciting prospect in the second half was implementing improvements from a remodelled store in Slough in five more shops of different types, which should provide lessons across the chain. The Slough shop has delivered above average sales growth and higher gross and cash margins.

JJB cut adjusted operating losses at its ongoing retail operations from £42.5m to £22.5m in the 26 weeks to August 1, when sales rose 10% to £184m.

Although JJB flagged options in the event of funding shortfalls or a covenant breach, Panmure Gordon retail analyst Jean Roche said: “We do not presently forecast this situation - we expect year-end cash of £1.8m despite a higher forecast loss. We also think that as the 2012 Olympics approach there is likely to be an uplift to JJB’s top-line growth and more visibility in the consumer environment.

JJB has appointed former Co-op director of food marketing Debbie Robinson as marketing director.