Carpetright says it is exploring store closures after securing emergency funding

Carpetright in early March issued a profit warning, saying that it anticipates its financial performance for the year to the end of April to be worse than previously expected

Carpetright is the latest retailer to run into trouble amid mounting pressures from rising interest rates, increasing wages and a spike in inflation (Reuters)

Carpetright has announced that it has secured £12.5m of emergency funding from one of its largest shareholders and that it is exploring the opportunity of seeking approval for a restructuring plan under which it would slash rents and shut stores to avoid going into administration.

The announcement follows reports that the company was scrambling to shore up funding in the face of mounting financial pressures. Earlier in March it issued a profit warning, saying that it anticipates its financial performance for the year to the end of April to be worse than previously expected.

It said at the time that it forecasts a small underlying pretax loss for the year and that it was “proactively engaged in constructive discussions with its bank lenders in order to ensure it continues to comply with the terms of its prevailing bank facilities”.

On Wednesday, Carpetright said that it was now exploring the feasibility of a so-called company voluntary arrangement, or CVA, the objective of which, it said, would be to “address the legacy property issue inherited from the previous leadership by rationalising the company's property portfolio in order to improve the long-term prospects of the business”.

CVAs are frequently used by companies to avoid going into administration. They are legally binding agreements between a company’s creditors and its management, usually to do with the structure and size of assets and liabilities. The majority of creditors need to approve a CVA in order for it to come into effect.

Carpetright said that, following the CVA, it intends to raise between £40m and £60m through an equity issue. Proceeds from that would be used to fund the group's strategy, reduce debts and cover costs associated with the CVA.

Commenting on the plans, chief executive Wilf Walsh largely blamed the company’s previous owners for the pressures it faces.

"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,” he said.

"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."

Carpetright is the latest retailer to run into trouble amid mounting pressures from rising interest rates, increasing wages and a spike in inflation.

Neil Wilson, a senior market analyst at ETX Capital, said that a slowing property market with people moving less often and greater competition, was also hampering Carpetright’s performance.

He said that the company was facing a “perfect storm” but might just have “found its compass to navigate its way out of trouble” if the CVA goes through.

Toys R Us and Maplin have both been forced into administration in recent weeks, while companies including New Look have closed scores of shops in an attempt to bolster their balance sheets. Mothercare on Wednesday also said that it was in discussions with lenders on the terms of its financial facilities. The retailer said that those talks were “progressing constructively”.