Debenhams' (DEB) shares have plummeted after it revealed accountancy firm KMPG has been called in to help the company draw up a restructuring plan. High street trading has proved too challenging for several retailers this year, and this latest development has triggered market angst that Debenhams could be considering radical remedies to the tough conditions, including a company voluntary arrangements (CVA). This year several other hard-pressed retailers have entered into CVAs which facilitate the termination of leases on underperforming stores ahead of schedule. Retailers using such schemes this year include Mothercare (MTC), Carpetright (CPR) and House of Fraser shortly before its collapse.
Sports Direct founder Mike Ashley, who bought House of Fraser out of administration, currently owns around 28 per cent of Debenhams’ shares, with many stores giving over some proportion of square footage to Sports Direct branding and products.
In response to a near 20 per cent share price fall on Monday following weekend press reports about KPMG's appointment, Debenhams' board has stated that it still plans to release annual results on 25 October, but has lowered current guidance for pre-exceptional pre-tax profits from £35m to £40m to around £33m. That compares to a current market range of £31m to £36.5m, but actually falls short of the company's last-issued guidance of £35m-£40m. Net debt is expected to land at £320m, relative to the group’s medium-term facilities of £520m.
But Patrick O’Brien, UK Retail Research Director at GlobalData, said the statement "ignored the real reason" why investors had punished the stock: "fear that its decision to bring in advisors KPMG is a prelude to a CVA, or worse". While Mr O'Brien admitted it "seemed early" for Debenhams to be "foisting" a CVA on its landlords, he said the company appeared "to be softening them up for some form of negotiation".
*This articles was updated on 11/9/18
