Carpetright today it was looking to enter a company voluntary arrangement (CVA) as it looks to rein back on store numbers.
The flooring-to-beds retailer, a Top350 trader in IRUK Top500 research, said it was exploring the option of a company voluntary arrangement (CVA) “the objective of which would be to address the legacy property issue inherited from the previous leadership by rationalising the company’s property portfolio in order to improve the long-term prospects of the business.”
In the meantime, it has been given a £12.5m loan by shareholder Meditor European Master Fund in order to boost working capital. Following a CVA, the retailer plans to raise up to £60m by issuing equity, with which it would reduce indebtedness and finance its ongoing strategy.
Carpetright chief executive Wilf Walsh said: “I am pleased that we have secured this additional support from one of our major shareholders as we continue to explore the feasibility of a CVA and a conditional equity issue. These further cash resources will enable us to make the necessary decisions free from short term funding pressure.
“The aggressive store opening strategy pursued by the company’s previous leadership has left Carpetright burdened with an oversized property estate consisting of too many poorly located stores on rents which are simply unsustainable. The company has worked hard over recent years to address this legacy issue and reduce the size of its property estate, however many of these poor performing stores still have long leases to run, which has limited our ability to exit a meaningful number in the short-to-medium term.
“While the board is confident that its brand investment and store refurbishment strategies have been, and will continue to be, successful in enabling Carpetright to respond to increased competition, it believes additional measures are necessary to directly address this legacy property issue. The board is therefore exploring the feasibility of a CVA in order to expedite the rationalisation of its property portfolio, with the clear objective of establishing a right-sized estate of contemporary stores, on economic rents, complemented with a compelling online offer. The conditional equity issue, which is intended to follow a successful CVA, would recapitalise the Group and we believe provide the necessary funds to accelerate its turnaround and address the competitive threat from a position of financial strength.
“In the interim, it is very much business as usual for all of our stores and we look forward to serving customers through the important Easter trading period. In tandem, we will remain in close contact with all colleagues to keep them fully informed as we move through this process.”
• Meanwhile, competitor ScS today said online sales reached £6m in the first half of its financial year, 11.3% up on the same time last year, following investment in ecommerce.
The update came as the sofa-to-flooring retailer, a Top500 retailer in IRUK Top500 research, reported revenue of £160.7m in the six months to January 27 – 1.8% up on the same time last year. Like-for-like sales, which strip out the effect of store openings and closures, were up by 2.2%. It went into the black at the bottom line, reporting pre-tax profits of £0.2m, up from a loss of £2.6m at the same time last year. By the end of the half-year, ScS traded from 101 owned stores and 27 concessions within branches of House of Fraser, as well as online.
Chief executive David Knight said a strategy of “providing excellent choice, value and quality for our customers” had paid off in challenging times.
“The board is confident that its strategy is proving successful, and the business continues to strengthen, enabling it to maximise opportunities as they arise and continue to grow market share,” he said. But he said that sales had softened in the last seven weeks, with like-for-like orders falling by 5.3%, mainly as a result of snowstorms at the beginning of this month.
“We expect that the retail market will continue to remain challenging in the short to medium term, and we are conscious that the group still faces the key Easter and May bank holiday trading periods. Despite the challenging trading conditions, the group continues to deliver profitable growth and the board is pleased with the group’s year-to-date trading, which is in line with its expectations.”
The retailer said online had improved as a result of investment both in its website and digital marketing, which boosted visitor numbers as well as the quality of footfall into stores. “Increasingly,” it said, we are finding that our customers enter our stores having already carried out online research.”
Its partnerships with House of Fraser, it said, helped it to access a wider demographic, including customers who prefer to shop in town centres and department stores. However, it said sales from the concessions fell by 14.2% to £11m during the half-year. It has a 5-star rating on Trustpilot, gained through more than 93,000 reviews.
