Debenhams PrePack, Dunelm Trading, ASOS and Privacy

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 of my blog should be aware that after many years and growing amounts of spam I am changing all my email addresses. You can either contact me in future via the Contact page of my web site (see https://www.roliscon.com/contact.html ) or via the Contact tab on this blog.

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 )

You can “follow” this blog by clicking on the bottom right.

© Copyright. Disclaimer: Read the About page before relying on any information in this post.

Share Tips, Debenhams, Jaguar (JLR) Layoffs and Brexit

Private Eye published its annual review of national press share tips this week. It makes for amusing reading and rather shows that financial journalists are no better than you and me at picking winners – indeed worse in most cases. The Guardian was noted as remaining “keen to empty its readers’ pockets”. It’s top ten share tips underperformed the FTSE100 by 28 percentage points, repeating the same dire performance as in 2017. One big loser was Footasylum (FOOT) which was down 90%. The Sunday Times was also mentioned as a provider of duff tips including Faron Pharmaceuticals, Clipper Logistics and William Hill. Also collecting brickbats were the Independent and Mail on Sunday. The moral is that relying on share tips from newspapers is not a sound investment strategy.

Several big stories in the national media today and yesterday are worthy of note. Debenhams (DEB) have lost their Chairman when he got a majority of votes against him after Mike Ashley of Sports Direct voted their 29% stake against him at the AGM, with support from another major shareholder. The new CEO, Sergio Bucher, also failed to get elected to the board but retains his executive job which is somewhat unusual. The company is clearly in need of refinancing as it is being overwhelmed by debt of £520 million. The share price is now down to 4p valuing the business at less than £50 million – not much for a business with revenue of £2.3 billion! But trading over Christmas and before was dire – see the trading statement issued on the date of the AGM. Mike Ashley has offered to refinance the business in return for more equity but has been rebuffed by the Debenham’s board. Comment: Can traditional department stores survive even if they dump their debt and reduce their property costs by a CVA? John Lewis still seem to be doing reasonably well but reported challenging trading and may cut their staff bonus this year. But most traditional department stores disappeared years ago. Debenhams do have a good on-line web site but will shoppers think of them and go there? Men’s shirts at 70% off, i.e. for £11.70, look good value but what margins are they making on those one wonders. Damn all I would guess. Some retailers like Dunelm do seem to be achieving a change to on-line customer service but Debenhams will be hobbled by its financial structure unless some vigorous action is taken. But it may simply be too late.

There has been much teeth gnashing over the thousands of job cuts announced by Jaguar Land Rover (JLR Group). Is that due to Brexit or other reasons? In fact it’s been hit by facing the unpopularity of diesel vehicles with a car product range that has very few petrol or hybrid/electric models unlike other up-market car makers. It has also been hit by a slow down in sales in China and by the fact that a new production plant has been built in Slovakia with state aid, i.e. jobs have moved there to a lower cost venue. That decision was taken before the referendum on Brexit in the UK. Jacob Rees-Mogg apparently drives one of their vehicles and said “Brexit has not happened. The reason it is making all these cuts is because it produces too many cars with diesel engines and its top of the range cars are not as reliable as you would want them to be”. As a Jaguar driver I agree with the first part but not the second

On the issue of the Brexit Referendum it is worth noting that the City of London Corporation Council have voted 60 to 31 against the suggestion of a second referendum – or “people’s vote” as some call it when the people already voted. This seems to be a very unpopular idea in general mainly because most “people” are rather fed up with the politicking over Brexit. And would just like to see the matter concluded.

Another big story in the media yesterday was that of the lady who had received two hand transplants (Corinne Hutton). She lost all her hands and feet from sepsis. I can understand her desire for the operation but I am not sure it is at all wise. Transplant recipients of any organs (and I am one) need to take drugs that are nephrotoxic to suppress the immune response, i.e. they damage the kidneys long-term. This means that they may need a kidney transplant after a few years and there is also a high risk of short-term graft failure. I know this not just from my knowledge of the field but from meeting a heart transplant patient in hospital who had also subsequently had to have a kidney transplant. Let us hope it works out well for Corinne though. But for the wealthy investors who read this blog, bear that in mind before you start shopping for new body parts.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

You can “follow” this blog by clicking on the bottom right.

© Copyright. Disclaimer: Read the About page before relying on any information in this post.