Investors took fright at Debenhams on Monday as the struggling department stores chain considers shutting stores to turn around its fortunes.
The retailer has asked advisers at accountancy giant KPMG to come up with various restructuring plans, including a company voluntary arrangement, a deal with creditors and landlords to prevent troubled businesses from going bust.
The shares tumbled as much as 18.5%, or 2.3p, to 10.4p, a near-record low from 102p five years ago.
The plunge will hit investors including Mike Ashley’s Sports Direct, which owns a 27.6% stake in Debenhams. The billionaire Newcastle United owner was forced to write off £85 million on the value of its stake in July. City analysts raised the prospect of an Ashley deal for Debenhams after he last month bought bust rival House of Fraser, in which he also owned a stake.
Markets.com analyst Neil Wilson said: “A CVA is being talked about, but given the weakness in the share price and the recent acquisition of House of Fraser, we must consider the possibility that Mike Ashley’s Sports Direct will swoop.”
Debenhams, which has issued three profit warnings this year, has been trying to cut costs and boost sales under chief executive Sergio Bucher, who joined from Amazon in 2016.
The news, however, has cast a shadow over his efforts to focus more on in-store beauty-bars and tie-ups with the likes of Costa Coffee to lure shoppers back to its stores.
The rent bill for Debenhams’ stores portfolio, some of which are on leases of more than 19 years, is a whopping £225 million per year. A CVA would help it cut its rent. It has already been speaking to landlords about subletting space in 30 of its stores and it had planned to close 10 over the next five years.
“It would suggest Debenhams’ turnaround strategy to date has not been enough to improve its financial performance to help alleviate the ongoing pressures that have led to profits warnings,” analysts at Liberum said. In February, the Standard revealed Debenhams was cutting 320 jobs at management level. Since then it said it will also shed up to 90 jobs at its head office. It also hopes to raise more cash, up to £200 million, by offloading its Scandinavian arm Magasin du Nord.
Debenhams’ woes have made it a prime target for hedge funds, with bearish investors like Crispin Odey amassing huge bets against it. Odey has more than 7% of Debenhams shares sold short, a bet equivalent to around £11 million, according to regulatory data.
Almost a fifth of Debenhams’ shares are on loan to short-sellers, who hope to make a profit from a fall in the share price.
Debenhams, which said it frequently works with different advisers, declined to comment further on Monday.
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