More than a third was wiped off the market capitalisation of Blacks Leisure yesterday after the embattled outdoor retail specialist warned that dire trading had resulted in a "significant" jump in its debt, which has forced it to extend its banking facility by £2m.
The operator of the Blacks and Millets chains also admitted it is considering "strengthening its capital structure" to grow the business, which could result in it launching a rights issue around its year end in February 2012 – depending on how it trades over the crucial Christmas period.
Certainly Julia Reynolds, the former boss of the online lingerie retailer Figleaves, faces an uphill task when she takes over as Blacks' chief executive on 1 August from Neil Gillis, who is leaving to pursue a career in private equity.
Nick Bubb, an analyst at Arden Partners, said: "She will have her work cut out. They are still losing money and are likely to go back to shareholders for more cash, which would lead to more dilution to long-term-earnings-per-share targets."
Blacks has endured a torrid four years and was forced to close 88 stores in 2009, as part of a controversial insolvency procedure to safeguard its future. The group, which has 313 Blacks and Millets stores, yesterday blamed tough trading conditions on the high street for a "significant increase in the group's indebtedness" since its financial year end on 26 February, when its net bank borrowings stood at £14.4m.
The retail group's like-for-like sales tumbled by 9.7 per cent between 27 February and 9 July, though they have improved to be up by 3.2 per cent for the six weeks since the end of May.
Total sales fell to £54.6m from £61.3m over the period.
While Mr Gillis said that strong demand for camping equipment, such as its own-brand tents, had driven the recent uplift, he said the "challenging market conditions affecting the UK retail sector" were putting pressure on Blacks.
He said: "It has impacted on the working capital that we need to fund the business." The group has agreed to extend its current bank loans by £2m, giving it bank facilities up to £40m until 15 December 2011, with Bank of Scotland. This compares with its previous facility of £35m, which was supplemented during certain periods by a seasonal peak loan of £3m for buying stock.
Mr Gillis said: "The fact that the bank has been prepared to lend us a further £2m is a very good sign and shows that they believe the turnaround is working." In addition, Blacks has agreed an amendment to its covenant test, though these will revert to those previously set from February 2012.
The squeeze on consumer spending has claimed a number of high-profile retail casualties over the past month, including Jane Norman and TJ Hughes. And Mr Gillis said trading conditions on the high street are worse than during the last recession.
He said: "I think it is tougher than it has ever been. The consumer is in a more fragile state than they were at the start of the recession. I think nobody knows really what is going to happen. Most people are worried about their jobs and as a result people think very carefully about making big-ticket purchases, and most of our products are over £100."
Shares in Blacks slumped by 5.5p, or 34 per cent, to 10.8p yesterday, giving it a market capitalisation of just £9.03m. Its shares peaked at more than 560p in 2006.
CVAS – A Chequered History
*Blacks Leisure completed a company voluntary arrangement – an insolvency procedure used by retailers to slash their rental payments – in 2009. Three other big chains did CVAs in 2009-10.
*Speciality Retail Group, the company behind the Suits You menswear specialist, appeared to have safeguarded its future in February 2010 after completing a CVA. But the 65-store retailer collapsed into administration just eight months later, sealing its fate.
*JJB Sports pushed through a second CVA in as many years this spring. It made a loss of £181m in the year to January and its four main shareholders have pumped £196m into the retailer through three fundraisings since October 2009.
*The final nail was hammered in the coffin of Focus, the fourth biggest player in the DIY market, this spring. The chain had agreed a CVA with creditors, largely landlords, in late 2009.Reuse content