British department store retailer Debenhams said it had a healthy cash position after a media report on Sunday saying insurers had cut cover for its suppliers sent its shares lower.
Shares in Debenhams fell as much as 8 per cent on Monday on the back of a Sunday Times report that the retailer, which has issued three profit warnings this year, was facing a cash crunch after credit insurers reduced or refused cover for its suppliers.
Credit insurance is important because it protects suppliers against the risk of customers going out of business before payment for goods is made. Suppliers could instead demand upfront payments, putting further pressure on a retailer’s cash position.
“Debenhams has a healthy balance sheet and cash position. All the credit insurers continue to provide cover to our suppliers and we maintain a constructive relationship with them,” the retailer said in a statement.
“It is well documented that market conditions are challenging, but Debenhams continues to be profitable, has a clear strategy in place and is taking decisive actions to strengthen the business?.”
Value
Shares in Debenhams, which have lost two thirds of their value over the last year, were down 6 per cent in morning trading.
Last month the retailer cut its profit forecast and launched a review of non-core assets. It said it might sell its Danish chain, Magasin du Nord, and a small printing business to raise cash. Debenhams is also reducing capital expenditure and cutting costs.
A string of British store groups have either gone out of business or announced plans to close shops this year, as they struggle with subdued consumer spending, rising business property taxes and growing online competition.
Department stores appear particularly vulnerable, with Bhs going bust in 2016, House of Fraser announcing plans last month to shut around half of its shops and John Lewis warning of a substantial drop in full year profit.
Debenhams warned in June that it did not expect brutal trading conditions to abate any time soon. Analysts said, if anything, they have got worse, with Britain’s prolonged spell of hot weather putting people off shopping and prompting early summer sales and promotions.
“As a mid-market department store, Debenhams is being squeezed by more premium players, specialists and online,” said analysts at Liberum, who have a “sell” stance on the stock.
“Structural challenges persist and we see the company as a value trap,” they said.
- Reuters
