Department store operator Debenhams (DEB) has been put through a pre-pack administration. It’s been bought by a new company formed by its secured lenders. Mike Ashley of Sports Direct is furious. His company invested £150 million in the shares of the company in the hope of taking it over, which will now be worthless. He had some choice words to say on the subject which included that it was an “underhand plan to steal from shareholders”, “as normal politicians and regulators fiddled while Rome burnt”, and that they “have proven to be as effective as a chocolate teapot”. I have much sympathy with Mike Ashley and the other shareholders as I have consistently criticised the use of pre-pack administrations in the past. It is an abuse of legal process. Why could it not have been put through an ordinary administration as the company appears to be a going concern, albeit with excessive debt, or Ashley’s offers considered?
Mike Ashley had previously made various offers to refinance the business including a pledge to underwrite a rights issue, but to no avail. It is not clear why his proposals were rejected, but as usual with pre-packs it is probably just a case of the lenders seeing the opportunity to make more money from a pre-pack. Ashley suggests he might try to challenge the pre-pack although that will be difficult now the deal is done.
What went wrong at Debenhams? Basically an old-fashioned retail format where sales were relatively stafic compounded by very high and onerous property leases and massive debt.
Contrast that with the trading statement from Dunelm (DNLM) this morning. This company sells home furnishings from out of town warehouse sites (not on the High Street like Debenhams) and have moved successfully into “multi-channel” operations with a growing on-line sales proportion. Overall like-for-like revenue in the third quarter is up by 9.8% with on-line sales up 32.1%.
Retailer ASOS (ASC) also announced their interim results this morning. Sales were up 14% but profits collapsed with margins declining and costs increasing while they invested heavily in technology and infrastructure. Competition in on-line fashion is increasing but you can see that such companies are taking a lot of business from High Street retailers, particularly in the younger customer age segment. The world has been changing and Debenhams has been an ex-growth business for many years. I do most of my clothes shopping, but not all, on the internet which shows even oldies are changing their shopping habits. I have never held Debenham shares although I do hold some Dunelm and have held ASOS in the past. But declining businesses with high debt are always ones to avoid however cheap the shares may appear.
Readers should be aware that after many years and growing amounts of spam I am changing all my email addresses. You can always contact me in future via the Contact page of my company web site (see https://www.roliscon.com/contact.html ).
It’s taking me some time to notify all the hundreds of organisations I am signed up with of my new email address. But that was almost frustrated when one of them sent out an email to all their clients using cc. rather than bcc. They have reported themselves to the Information Commissioner! But will they take any action? I doubt it. Thankfully the company in question used one of my older addresses which will soon be deleted. Such idiocy is not acceptable.
Another problem I am having of late is that if I mention a company or look at its web site, I then subsequently get bombarded with web advertising. So I am now seeing repeated advertisements for SuperDry products when I have absolutely no interest in such products. Despite removing cookies they still appeared. This is the kind of problem that is annoying people about the lack of privacy in the modern world and which needs tackling.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )