Monday 16 July 2018

UK retailers forced to negotiate with lenders as high street hammered

Carpetright is among UK high street giants being squeezed Photo: PA
Carpetright is among UK high street giants being squeezed Photo: PA

James Davey

The impact of a deterioration in trading on the UK high street is becoming clearer, with a range of big retailers caught up yesterday.

Mothercare said that its lenders had agreed to defer a test of its financial covenants due on March 24 and that talks on the terms of its loans were "progressing constructively".

The company warned earlier in the month that its full-year profit would likely come in at the lower end of its guidance and said it would need some financial covenants - or health tests - to be waived. A business typically seeks a covenant waiver in order to avoid triggering a technical default on the conditions attached to loans - such as maintaining earnings above a threshold.

Separately, home furnishing giant Carpetright said it had agreed a loan with a shareholder in exchange for new shares to fund the short-term running of the company, and that it may raise another £60m to try to turn its business around.

The agreement would also mean an adjustment of its financing conditions and a relaxation of covenants, it said.

Shares in the company, which sells floor coverings, were up almost 6pc on the news, which gives some certainty to investors.

Carpetright has agreed a £12.5m loan with shareholder Meditor in exchange for 5pc of new shares at Tuesday's 40.1 pence per share closing price, the company said.

Meanwhile, B&Q and Screwfix owner Kingfisher warned that the outlook for the UK market was "more uncertain" after a recent dip in trading, adding to concerns of a deterioration across the country's retail sector.

Kingfisher shares fell as much as 8.5pc after Europe's second-biggest DIY retailer said its businesses in Britain experienced softer sales in the fourth quarter of its 2017-18 financial year.

Kingfisher highlighted weaker demand for "big ticket" purchases such as kitchens - often a sign consumers are feeling less confident about their prospects.

Britons' discretionary spending is being hit by inflation running ahead of wage rises and because of the uncertainties of Brexit.

Traditional store groups are also struggling with a boom in online shopping.


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