Shares in fallen fashion-to-furnishings brand Laura Ashley (ALY) shed 38.5% to trade at a shrivelled 2p on Monday after the ailing retailer confirmed lender Wells Fargo and majority shareholder MUI Asia Limited are in talks regarding the retailer’s immediate funding needs.
This ominous statement accompanied yet another downbeat trading update from Laura Ashley, where first half sales slumped the best part of 11%. While the loss-making company remains optimistic it can turn the business around, today’s share price reaction suggests the market thinks it could be curtains for the business.
FIGHTING FOR ITS FUTURE
Responding to weekend press speculation over its finances, the cash-strapped curtains, cushions, upholstered furniture and fashion seller warned recent movements in its stock and customer deposit levels had led to a reduction in the amount it can draw down under its working capital facility with Wells Fargo.
Laura Ashley negotiated a £20m loan from Well Fargo last year, but the US bank has tightened the purse strings.
MUI Asia Limited, Laura Ashley’s Malaysian parent and majority shareholder, and Wells Fargo are ‘discussing arrangements that will allow the group to utilise sufficient funds from the Wells Fargo facility to meet the group’s immediate funding requirements and to draw down additional amounts to meet ongoing working capital needs for the group in the short to medium term.’
However, Laura Ashley denied these arrangements would involve a cash injection by MUI Asia Limited into the embattled group.
Alarmingly for long-suffering shareholders, Laura Ashley warned that if it ‘remains unable to access the requisite level of funding’, it will ‘need to consider all appropriate options’, which presumably include placing the ailing retailer into administration.
HALF YEAR HEADWINDS
Laura Ashley conceded trading has ‘continued to be challenging’ during the current financial year. Sales tumbled 10.8% to £109.6m in the half to 31 December 2019.
The drop in revenue was blamed on ‘market headwinds’ and ‘weaker consumer spending during the period, which led to a decline in sales of bigger ticket items’.
EARLY STAGE TURNAROUND
Laura Ashley insisted it is ‘well advanced in developing its turnaround strategy’, albeit the execution ‘remains at an early stage’.
Sales were flat for the first 7 weeks of trading this year, arresting recent top line declines, although investors are understandably more focused on the implications of the funding crunch.
Chairman Andrew Khoo commented: ‘We acknowledge that recent trading conditions, in line with the overall UK retail market, have indeed been challenging. There is however a robust plan in place to turn the business around and the board of directors is confident and optimistic that the recent appointment of Katharine Poulter will enable the business to execute this broad based strategy.
‘The major shareholders have indicated their continued confidence in the business and are fully supportive of the management team and execution of the transformation plan.’