JJB Sports may launch a price war on the high street to encourage shoppers to start spending again.
Hurt by a 4.3 per cent fall in like-for-like revenues during the ten weeks to Sunday, JJB yesterday said it saw "very few encouraging signs" of an improvement in retail conditions.
Clothing sales were under the most pressure and JJB, which has branches throughout the Midlands, said it was continuing to feel the competitive heat from rivals.
Last month, rival Allsports went into administration and on Monday cut more than 1,300 jobs, or two fifths of its workforce.
Announcing that operating profits fell by a third from #27.4 million to #17.6 million during the six months to July 31, JJB executives said the second half would be equally as tough as the first.
The company said: "To remain competitive, we may well have to lead a more aggressive pricing policy."
Like-for-like sales fell 8.8 per cent during the half year, although a third of this decline was down to weaker demand for replica England kits in the absence of a major sports tournament to rival the Euro 2004 football championships.
In addition, two of the biggest Premiership teams decided to launch their new kits after the end of July.
However, new chairman Roger Lane-Smith has pledged to stick by the business strategy of founder David Whelan whom he succeeded earlier this year.
That involves developing more superstores that are combined with health clubs as well as supplying top brands such as Nike and Adidas alongside cheaper ranges of its own brands.
"Particularly during the remainder of the current financial year, I see very few encouraging signs within the retail industry that would indicate an imminent end to the difficult trading conditions and strong competition that we are currently experiencing," Mr Lane-Smith told shareholders.
Investec Securities analyst Matthew McEachran said: "The chairman's statement highlights how dificult trading conditions are - and we believe that the Allsports collapse may yet result in short-term discounting."
JJB's health clubs division provided the most upbeat news, announcing a 32 per cent jump in membership after adding seven new clubs during the half.
The group's chief executive, Tom Knight, said like-for-like memberships rose within a single-digit range and, of those clubs established more than 18 months ago, membership jumped by ten per cent. JJB will have 35 clubs by end of the year.
Mr Knight also said he was buoyed by England's qualification for the soccer World Cup in Germany next year, because it promised not only greater England shirt sales but also a run in Scotland on Dutch, Argentinian and German shirts - England's key rivals.
He added that, despite media talk of waning interest in soccer, particularly after England's cricket triumph over Australia this summer, sales of replica shirts had not dropped.
Mr Knight also said former chairman Mr Whelan was happy to retain his 39 per cent stake in the company.
"The last time I spoke to him on this Whelan said he was very happy to retain his holding and I don't believe he has anything but absolute faith in the way we are taking this ahead," he said.
Mr Whelan retired as chairman in July to devote more time to newly promoted Premiership team Wigan Athletic, but remains an executive director of the firm.
JJB has 441 stores in the UK comprising 195 out of town superstores, 106 high street superstores, 113 smaller branches in town and city centres and 27 other outlets.