Debenhams is currently in the midst of a redesign strategy

Debenhams is currently in the midst of a redesign strategy

Struggling British department store group Debenhams has appointed restructuring experts KPMG to look at a number of options for the company, including a potential company voluntary arrangement (CVA).

Debenhams, which issued its third profit warning for the year in June, is currently in the midst of a redesign strategy aimed at finding efficiencies through simplifying and focusing the business, with an eye on becoming more digitally-driven. This includes reviewing the closure of up to ten stores and exiting non-core international markets as the retailer, like other chains, has come under increasing pressure from rising costs, reduced high street footfall and competition from online. 

According to The Sunday Telegraph, KPMG has been advising Debenhams for a number of weeks on options including plans to hand back excess store space to landlords, and a CVA – a form of insolvency process that allows retailers to close shops and reduce rents to cut costs.

A spokesperson for Debenhams told just-style: "Like all companies, Debenhams frequently works with different advisors on various projects in the normal course of business."

In a separate statement, CEO Sergio Bucher, said: "The market environment remains challenging and underlying trends deteriorated through the summer months. Nevertheless the product and format improvements we have tested are gaining traction and we are ready to scale up some of our strategic activity ahead of peak. Having put in place a leaner operational structure and strong leadership team, and taken action to strengthen our financial position, we are well equipped to navigate these market conditions and take advantage of any trading opportunities that emerge."

The retailer is understood to have worked with KPMG on a number of various projects for some time, and management is said to be taking a prudent approach to the future of the chain in light of the tough trading environment.

The pressure on the UK's department store retailers has intensified of late, with House of Fraser falling into administration last month before being bought out by Mike Ashley's Sports Direct. John Lewis & Partners is also expected to report lower first-half profits on Thursday (13 September).

Debenhams, however, says it is confident of reporting pre-exceptional pre-tax profit for fiscal 2018 of around GBP33m (US$42.8m) when it issues its preliminary results on 25 October, and EBITDA of around GBP157m. Year-end net debt is expected to be around GBP320m, in-line with guidance and retaining "significant headroom" on the retailer's GBP520m medium term facilities.

"We have continued to strengthen our financial position, including increasing headroom on our fixed charge covenant as announced on 1 August 2018, in order to give us comfortable liquidity through the peak borrowing period, ensuring maximum flexibility amidst volatile market trading conditions. The early weeks of the new season have shown more positive trends and any sustained upturn would result in a rebound in our profit performance," the company added. 

"We continue to focus on our priority actions to mitigate current market conditions and drive progress in FY2019."

Patrick O'Brien, UK retail research director at GlobalData, however, believes Debenhams' response over its future has singularly failed to address investor concerns.

"While trying to give reassurance with regards to its short term performance – earnings and debts are running at expected levels, and the new season has seen 'positive trends' – it ignored the real reason why investors had punished its stock this morning: fear that its decision to bring in advisors KPMG is a prelude to a CVA, or worse."