Debenhams launches CVA, to shut 22 stores, sales still falling
Debenhams announced its expected CVA on Friday, or more correctly it announced two CVAs, one relating to Debenhams Retail Limited, the main trading entity, and one for Debenhams Properties Limited. And it said its “decisive actions will serve to keep Debenhams on a stable financial footing and ensure the future of the company.”
All Debenhams stores are proposed to remain open during 2019, including through the Christmas peak trading period, but up to 22 stores are expected to close in 2020. It didn't say when they would shut, although reports have suggested it would be just after the Christmas period,
They include Altrincham, Ashford, Birmingham Fort, Canterbury, Chatham, Eastbourne, Folkestone, Great Yarmouth, Guildford, Kirkcaldy, Orpington, Slough, Southport, Southsea, Staines, Stockton, Walton, Wandsworth, Welwyn Garden City, Wimbledon, Witney, and Wolverhampton. The 11 Republic of Ireland stores won’t be affected.
Debenhams has spoken to the roughly 1,200 people who work in those stores and said it will try to redeploy as many as possible.
Further store closures will be confirmed “in due course, the final number being dependent on future trading performance; discussions with landlords regarding changes in lease terms and rental levels; and with local authorities regarding business rates.”
That means Debenhams is going to be talking to landlords and councils about radical rent reductions and any way it can lessen the load of its business property taxes.
The company has already confirmed the closure of its Lodge Farm warehouse and said its three continuing warehouse facilities could be consolidated further as a result of this process.
CVAs require creditor approval and in an effort win landlord support, the company said that “assuming the CVA becomes effective, a fund of a maximum value of £25m will be available for those creditors compromised by the CVA to participate in future growth of the UK business.” A meeting to vote on the proposal will happen on May 9.
Executive chairman Terry Duddy said the issues facing the UK high street are very well known and that the company “has a clear strategy and a bright future, but in order for the business to prosper, we need to restructure the group's store portfolio and its balance sheet, which are not appropriate for today's much changed retail environment. Our priority is to save as many stores and as many jobs as we can, while making the business fit for the future.”
He added that “Debenhams is an attractive and cash generative business with a leading position in cosmetics and skincare, and a top five position in fashion. The group has previously outlined its Redesigned strategy which details a smaller UK footprint with better quality stores. Today's announcement is a key step in delivering that strategy.”
The company also stressed that the “CVA does not seek to compromise claims of any creditors other than certain landlords, local authorities and inter-company liabilities. All trade suppliers and the entitlements of employees will continue to be paid in full during this process.”
The company also updated the trading performance for the 26 weeks to March 2 and said that group gross transaction value (GTV) declined by 5.3%, with like-for-like sales down 5.2%. UK sales declined by 5.4%, with International sales down 4.8%.
Group EBITDA, before exceptional items, declined 36.3% to £65.9m in the same period, “as a result of lower sales and a 150bp decline in gross margins.”
Its UK stores declined 7.4% over the half “due to weak industry footfall, although performance over the peak period was less negative.” Stores trading in the Debenhams Redesigned format “traded better than the average performance by [around] 1.5% and we have seen a positive response to our revitalised womenswear offer.”
Digital sales rose 2.5% on a like-for-like basis and this "reflects a slowdown post-peak as a result of our withdrawal from own bought furniture and weaker demand for high ticket discretionary items.”
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