Ailing floor coverings-to-beds retailer Carpetright (CPR) confirms it will seek creditor approval for a restructuring plan to shutter stores and slash its rent bill.

Yet while the company'S voluntary arrangement (CVA) may give Carpetright’s turnaround a fighting chance, remaining investors are not so sure. Shares in the company are down around 3.5% at 40.5p in mid-morning trade, although this was after a shocking near 18% initial slump.

This follows the 40% crash in January.


The key immediate concerns clearly surround today's announced £60m cash call and embarrassing debt breach.

Carpetright has finalised the terms of a CVA management hopes will ‘restore the viability of the group’s business model’. The CVA will allow embattled Carpetright to fundamentally restructure its physical store estate, shutter loss-making stores and cut its onerous rent bill.


From 400-plus UK stores, chief executive officer (CEO) Wilf Walsh has identified a whopping 205 sites 'that are underperforming and/or on unfavourable lease terms,or, in certain cases, not expected to have significant strategic value to the company going forward.'

And from this list, '92 sites have been identified for closure in the short term under the CVA Proposal, with the balance of 113 sites being subject to a reduction in rental costs and revised lease terms.'

Carpetright will seek creditor approval at a meeting on 26 April for the CVA before asking shareholders for their backing on 30 April; management stresses Carpetright 'continues to trade as a going concern' and 'is not in and will not be in administration as a result of commencing the CVA process.'

Walsh comments: 'These tough but necessary actions will enable us to address the burden of a legacy UK property estate consisting of too many poorly located stores on unsustainable rents and are essential if we are to restore our profitability and deliver a successful turnaround.

Completion of the CVA and equity financing will enable us to establish an appropriately-sized estate of modernised stores, on economic rents, complemented with a compelling online offer, enabling Carpetright to address the competitive threat from a position of strength.'


Shareholders are now in for significant dilution. Carpetright, which recently tapped significant shareholder Meditor for a £12.5m loan, plans to raise £60m through a placing and open offer to reduce debt and fund the restructuring plan.

But this £60m is at the top end of the previously flagged £40m-to-£60m range. And what’s more, Carpetright reveals it needs emergency funding of up to £15m to keep the business going until the funding proceeds are received and is 'currently in discussions with a key stakeholder in relation to obtaining this interim funding.'


Also rattling investors is the news that a technical breach has been identified, which relates to Carpetright’s directors needing to restrict indebtedness to twice the company’s adjusted capital and reserves under the Articles of Association. This borrowing limit breach hardly inspires confidence, but broker Shore Capital is confident 'this can be remedied by shareholders passing a resolution so not a material issue, in our view.'

Purfleet-headquartered Carpetright has coughed up a string of profit warnings due to the squeeze on big-ticket purchases, which has also hurt rival home product purveyors ranging from B&Q parent Kingfisher (KGF) to Topps Tiles (TPT) and Safestyle UK (SFE:AIM), as well as the impact of fierce competition from new national flooring competitor Tapi.

Carpetright confirms that since last updating the market (1 Mar), trading conditions have remained difficult, although reassuringly, guidance (for now at least) for a small underlying pre-tax loss for the year ending 28 April remains unchanged.

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Issue Date: 12 Apr 2018