Shares in Studio Retail (STU) have been temporarily suspended at 115p after the embattled online value retailer said it is calling in the administrators following a working capital crunch.
The news is a blow for billionaire Sports Direct-owner Mike Ashley, whose Frasers (FRAS) retail outfit remains the biggest shareholder and recently raised its stake in Studio Retail from 27% to the best part of 29% after a downgrades-induced share price slump.
Studio Retail shares crashed 35% at the end of January in response to a warning that profits would be hit because of shipping issues and subdued post-Christmas demand.
That sharp sell-off followed another big decline in November 2021. A year ago the stock was changing hands at nearly 300p.
Having failed to secure a short-term loan ‘it now looks as if a buyer will be sought for the business,’ said AJ Bell analyst Danni Hewson, and Ashley’s tactic has often been to wait until a retailer goes into administration before pouncing with a cut-price deal.
‘He’s a shrewd operator and would rather wait until a company is on its final breath before coming in with a lifesaving offer.’
SHORT-TERM LOAN DENIED
As Shares reported here on 31 January, Studio over-committed to buying stock against a difficult backdrop of global supply chain disruption and this surplus stockholding requires additional working capital funding ‘whilst this good quality stock is sold through to customers’.
In today’s statement, Studio said it requested a short-term £25 million loan from its lending banks to fund the surplus stockholding which the affordable clothing, homewares and toys seller believed was sufficient to enable it to sell through the stock to customers.
Unfortunately, ‘following detailed discussions with our UK lenders, the company has not been able to reach agreement with them to provide the additional funding Studio requires’ and is going into administration to ‘protect the interests of its creditors’.
SHARE PRICE PLUNGE
Last month Studio Retail warned adjusted pre-tax profit for the current year is likely to be in the £28 million to £30 million range, below the £35 million the market was looking for and the lowered £35 million to £40 million guidance the retailer had given in November.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
