- ASOS seeks more flexible credit
- Made.com receives ‘a number’ of offers
- Eve Sleep enters administration
Troubles continue to pile up for retailers as the cost-of-living crisis weakens consumer confidence and strains company finances.
In the latest flurry of negative news flow, online fast fashion retailer ASOS (ASC) sought to allay fears over a cash flow squeeze following media reports that a leading credit insurer has cut cover for its suppliers, while bombed-out online mattress seller Eve Sleep (EVE:AIM) slipped into administration.
ASOS CASH FLOW SQUEEZE
Shares in ASOS cheapened 11% to a 12-year low of 475.2p after the online fashion retailer revealed it is in talks to renegotiate terms on its bank facility in a bid to avoid hitting the financial buffers.
ASOS confirmed it is in ‘the final stages of agreeing an amendment to the future financial covenants in its Revolving Credit Facility, which matures in July 2024’.
This action will give ASOS ‘significantly increased financial flexibility, against the uncertain economic backdrop’, insisted the company, which ‘retains a strong liquidity position’ and argued this is ‘a prudent step in the current environment’.
The fact ASOS is talking to its lenders about more flexible borrowing facilities shows how challenging conditions for retailers have become, while media reports that Allianz Trade has more than halved its insurance cover for ASOS’ suppliers suggest the online retailer is seen as a higher risk entity.
Credit insurance protects suppliers against the risk of customers going bust between the point of accepting an order and payment being made. When cover isn’t available, retailers’ cash flows can be strained s suppliers tend to demand payment upfront.
The cuts to insurance cover add to the problems piling up for ASOS, which has seen sales weaken due to the cost-of-living crisis squeeze and higher costs eat into its skinny margins.
Canaccord Genuity points out that the e-commerce sector has ‘arguably, gone through the perfect storm and remains firmly in it today. Although current trading appears bleak, there are some signs that the outlook is improving, while valuations are at record lows’.
While the broker believes there are ‘tentative signs’ that now ‘could be the right time to begin “sifting through the rubble” to identify some of the higher quality, more protected e-commerce companies in the UK sector’, it has initiated coverage on ASOS with a ‘sell’ recommendation.
NIGHTMARE FOR EVE SHAREHOLDERS
Elsewhere in retail, Made.com’s (MADE) bombed-out shares were marked up 21% to 8.6p on news the cash-strapped online furniture retailer has received ‘a number’ of offers as it seeks to secure a rescue deal amid falling sales.
Made.com recently kick-started the process to find a buyer following an unsuccessful funding round and the board has now ‘received a number of non-binding indicative proposals’ and ‘invited a select number of parties to progress towards firm offers by the end of October, following a due diligence process’.
Made.com stressed that based on the working capital needs, ‘any firm offer would require interim financing to be put in place at the time that firm offers are expected, which the parties involved in the process are aware of’.
Sadly, direct to consumer mattress seller Eve Sleep has called in administrators after failing to find a buyer. Trading in the stock has been suspended and shareholders won’t get anything back even if a buyer is found.
The self-styled ‘sleep wellness’ brand said it has received a number of ‘indicative’ offers, but following further talks, ‘discussions with respect to a sale of the company or in relation to an equity or other such fundraising transaction have not been successful’.
CEO Cheryl Calverley said it is ‘heartbreaking to have to acknowledge that the best way to preserve value for creditors, those partners and suppliers that have helped us on this journey, is to now terminate the formal sale process and appoint administrators’.
She added: ‘We have moved heaven and earth to seek a way forward as an independent or acquired business, but ultimately prevailing market conditions just do not support that.’
Russ Mould, investment director at AJ Bell, pointed out Eve Sleep has been ‘more of a prolonged nightmare for investors rather than a stock that is tucked away and slowly works its magic.
‘It has gone from 127p per share in 2018 to 0.54p in just over four years. Management couldn’t generate a profit and the company was haemorrhaging cash.
‘It goes back to the basics of business - you need a good idea, good execution and enough people to want to buy the product so you receive more money than you spend. Sadly, Eve Sleep didn’t have all the right elements.’
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.
