Embattled retailer Carpetright has put jobs under threat as it draws up sweeping restructuring plans which will close poorly-performing stores and see it tap investors for up to £60 million.
The group said it was “exploring” a company voluntary arrangement to help shore up its financial position, a move which would allow it to close loss-making shops and secure deep discounts on rental costs.
If the CVA goes ahead, Carpetright would push through an equity issue of between £40 million and £60 million to fund plans to reboot the business and drive down debt.
The group, which has 409 UK shops, also agreed a £12.5 million unsecured loan from major shareholder Meditor to help with “short-term working capital requirements”.
It marked another dark day for Britain’s beleaguered high street, with Mothercare confirming that it had reached an agreement with lenders to defer the testing of its financial covenants as it “engaged in preliminary discussions” on securing additional financing.
Carpetright chief executive Wilf Walsh said it would be “business as usual” for the flooring firm’s stores during Easter and it would remain in “close contact” with staff over its restructuring plans.
He said: “I am pleased that we have secured this additional support from one of our major shareholders as we continue to explore the feasibility of a CVA and a conditional equity issue.
“These further cash resources will enable us to make the necessary decisions free from short-term funding pressure.
“The aggressive store opening strategy pursued by the company’s previous leadership has left Carpetright burdened with an oversized property estate consisting of too many poorly located stores on rents which are simply unsustainable.”
Investors cheered news of the restructuring, sending shares up 3% in early afternoon trading.
Carpetright has seen its stock prices come under pressure since the start of the year after it issued two profit warnings and saw sales suffer during the crucial Christmas trading period.
Updating on talks with lenders, it said discussions were ongoing and an extension of its banking facilities – including a relaxation of covenants – would only come if a CVA is agreed.
Mr Walsh added: “The company has worked hard over recent years to address this legacy issue and reduce the size of its property estate. However, many of these poor performing stores still have long leases to run, which has limited our ability to exit a meaningful number in the short to medium term.
“While the board is confident that its brand investment and store refurbishment strategies have been, and will continue to be, successful in enabling Carpetright to respond to increased competition, it believes additional measures are necessary to directly address this legacy property issue.”
The Press Association understands Big Four accountancy firm Deloitte would handle the CVA process.