Bombed-out department store chain Debenhams (DEB) rebounds 37.1% to 4.3p after securing fresh credit from lenders that will enable it to keep trading while it works out a ‘broader refinancing and recapitalisation’ package.
In a further positive for an embattled retailer whose newsflow has been consistently negative, Debenhams has agreed to develop a strategic sourcing partnership with Hong Kong-listed supply chain solutions specialist Li & Fung, which marks a key part of the turnaround under CEO Sergio Bucher’s Redesigned strategy.
Debenhams shares have completely cratered in recent years, so today’s leap is off a very low base. Furthermore, this is a heavily shorted stock, meaning any positive news can send the stock surging higher as short-sellers scramble to cover their positions.
DEBT RELIEF LIFELINE
There’s some relief for long-suffering shareholders today as Debenhams announces an extension of the terms on some of its debt, thereby increasing the short term cash available to the retailer by £40m.
The money borrowed provides ‘a bridge to facilitate a broader refinancing and recapitalisation’ and gives Debenhams, whose biggest shareholder is Mike Ashley’s Sports Direct (SPD), a bit more breathing room while it looks to secure its longer term future.
‘In this context, we are continuing to engage constructively with our stakeholders, and intend to conclude a comprehensive refinancing by the end of this period,’ says Debenhams, referring to the second quarter of 2019 and adding that ‘a further update will be provided in due course.’
The beleaguered Bucher insists the announcement ‘represents the first step in our refinancing process. The support of our lenders for our turnaround plan is important to underpin a comprehensive solution that will take account of the interests of all stakeholders, and deliver a sustainable and profitable future for Debenhams.
‘In addition, the partnership agreement we are announcing today with Li & Fung will be a key part of our turnaround plan’, helping his charge to ‘anticipate and respond more quickly to trends and our customers’ preferences, as well as delivering better quality product.'
Although the agreement is welcome news for investors and the structurally-challenged high street, Debenhams’ recovery prospects remain uncertain with the business straining under the load of its debts and having to shutter underperforming stores as shoppers move online and migrate to cheaper rivals.
A January trading update confirmed a tough festive period with like-for-like sales over Christmas down 3.4%. This marked an improvement over the preceding quarter, yet was achieved through significant margin-eroding discounts.
