Embattled fast-fashion brand Quiz (QUIZ:AIM) is to place its brick and mortar stores subsidiary into administration, the COVID-19 pandemic having accelerated the structural spending shift online.
However the shares, looking decidedly threadbare following a string of profit warnings and trading challenges, rallied 16.3% to 7.85p after the hard-pressed womenswear purveyor stressed it would buy the business back so it can try to renegotiate better rental terms on a much-reduced store base.
IS STORE RESTRUCTURING THE ANSWER?
Quiz’s 82 standalone stores in the UK and Ireland, which have been closed since 22 March due to the lockdown, and its three stores in Spain, are operated by its Kast subsidiary.
In today’s restructuring update, Quiz announced that its loss-making store estate, encumbered by high rents and rates and clobbered by the rapid shift in spending away from the high street and towards online, was simply not financially viable in its current structure.
Quiz has appointed administrators from KPMG to Kast and will subsequently acquire the business and certain assets of Kast, but none of its leases, from the administrators for £1.3m in cash.
Once the acquisition completes, Quiz expects to renegotiate the leases for the majority of the stores where ‘appropriate leases can be secured on a flexible basis with rents commensurate with revenues generated’.
Kast’s wholly owned subsidiary, Kast Spain, operates the trio of stores in Spain, but following the appointment of administrators, Kast Spain will no longer be under the group’s control and Quiz will cease to provide services or support to Kast Spain.
A ‘RELEVANT PILLAR’
Shares in Glasgow-based Quiz have shed 95% of their value since the retailer’s IPO on AIM at 161p back in 2017.
Having cut costs and capital expenditure during the pandemic, management believes the restructuring will enable Quiz to operate ‘an economically viable store portfolio alongside its online, UK concession and international channels which are unaffected by today’s announcement’.
With £5.93m cash in the coffers and additional bank facilities of £1.75m, Quiz continues to believe that stores, ‘with appropriate property costs and flexible lease terms, can be a relevant pillar in Quiz’s omni-channel model moving forward’.
The company also expressed confidence in ‘the relevance of the Quiz brand and its omni-channel model to deliver future sustainable growth in both the UK and internationally’.
Chief executive Tarak Ramzan explained that physical retail in the UK was facing a ‘major structural challenge’ before the outbreak of coronavirus, with the economics of operating stores on traditional leases becoming ‘increasingly difficult’.
He added, ‘Whilst we have taken pro-active actions over the past 18 months to drive footfall to our stores and renegotiate leases to improve performance, the significant economic uncertainty we now face as consumers and businesses emerge from the COVID-19 pandemic has meant that, in order to ensure a sustainable future for the group, we have taken this decision to place the subsidiary which operates our stores into administration.’
Sticking with its ‘hold’ recommendation and 5p price target, broker Panmure Gordon said: ‘The decision by Quiz to place its stores subsidiary into administration will allow it to try and achieve a renegotiation of its rental costs to reflect the realities of the current environment, It should therefore be positive for the equity holders.’
