September 10, 2018 / 2:12 PM / 2 months ago

UPDATE 1-Debenhams considers radical restructuring, shares slump

* Adviser KPMG examines options for retailer Debenhams

* Options include Company Voluntary Arrangement

* CVA would see stores close, rents reduced

* Firm says to make profit expectations for 2017-18 year

* Shares fall as much as 19.5 pct to record low (Adds details of Debenhams’ latest statement, updates shares)

By James Davey

LONDON, Sept 10 (Reuters) - Struggling British department store chain Debenhams is reviewing its options, including a possible legal procedure that could see it close more stores, it said on Monday.

Shares in the retailer, which has issued three profit warnings this year, plunged to a new low after it widened the remit of adviser KPMG to include “longer-term options” such as a possible Company Voluntary Arrangement (CVA).

CVAs allow retailers to avoid insolvency or administration by offloading unwanted stores and securing reduced rents on others. They have been adopted by British groups including fashion chain New Look, floor coverings retailer Carpetright , mother-and-baby goods company Mothercare and most recently home improvements chain Homebase.

Debenhams shares plunged as much as 19.5 percent to a new low of 10.34 pence on the news, despite the company saying it would meet profit and debt forecasts for its 2017-18 fiscal year

“The board continues to work with its advisers on longer term options, which include strengthening our balance sheet and reviewing non-core assets,” said Chairman Ian Cheshire.

“This activity is in order to maximise value for shareholders and protect other stakeholders, including our employees.”

Debenhams, which employs around 27,000 people globally, said in June it might sell non-core assets, including its Danish business, to bolster its finances and in July denied it was facing a cash crisis over supplier insurance.

The group is in the second year of a turnaround plan under Chief Executive Sergio Bucher, a former Amazon executive, focused on closing up to 10 stores, downsizing 30 others and renegotiating leases and rents on 25 stores up for renewal over the next five years. It is also trying to cut promotions and improve its online service.

However, progress has been hampered by a squeeze on UK consumers’ budgets, a shift in spending away from fashion towards holidays and entertainment, and intense online competition.

Those trends have particularly damaged the department store sector. BHS went bust in 2016, House of Fraser was bought out of administration last month by Mike Ashley’s Sports Direct and even market leader John Lewis has warned on profit.


“The market environment remains challenging and underlying trends deteriorated through the summer months,” said Bucher.

“Nevertheless the product and format improvements we have tested are gaining traction and we are ready to scale up some of our strategic activity ahead of peak (selling season).”

Debenhams said it expected to report a 2017-18 pre-exceptional pretax profit of around 33 million pounds ($42.7 million), within the current market range of 31-36.5 million pounds, and year-end net debt of about 320 million pounds, in line with guidance and retaining significant headroom on the firm’s medium term facilities of 520 million pounds.

It said the early weeks of the new season had shown “more positive trends.”

The stock was down 1.7 pence at 10.9 pence at 1345 GMT, valuing the business at about 135 million pounds. (Editing by Gareth Jones and Mark Potter)

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