Carpetright plan to close stores in rescue deal

Carpetright (Other OTC: CGHXF - news) is exploring a rescue plan which would allow it to speed up the closure of underperforming stores.

The beleaguered retailer, which employs 2,700 people in the UK, did not reveal the number of locations facing the axe though it has been suggested that around 100 are likely to be affected.

Carpetright announced the strategy as it confirmed that it had secured £12.5m in funding from a major investor - confirming a report hours earlier on Sky News.

Shares (Berlin: DI6.BE - news) - down around 80% over the past 12 months - rose 1% on the news.

It was the latest bleak update from the high street on a day which also saw a profit warning from menswear business Moss Bros (LSE: MOSB.L - news) and Kingfisher (Frankfurt: 812861 - news) , the owner of B&Q, reporting deteriorating sales at the DIY chain.

Meanwhile, Mothercare (Other OTC: MHCRF - news) said that it was making progress in talks with lenders as it seeks new funding and that it had agreed to push back a deadline later this week for ensuring its finances were in order.

Carpetright, which trades from 409 shops across the country, warned earlier this month that it was likely to report a loss for the year to 28 April and was looking at a range of options to beef up its balance sheet.

On Wednesday, the retailer said it was looking into a Company Voluntary Arrangement (CVA) with the aim of "rationalising the company's property portfolio in order to improve the long-term prospects of the business".

Chief (Taiwan OTC: 3345.TWO - news) executive Wilf Walsh blamed previous bosses of the company for pursuing an "aggressive store opening strategy".

He said this had left Carpetright (EUREX: CPRF.EX - news) "burdened with an oversized property estate consisting of too many poorly located stores on rents which are simply unsustainable".

Efforts to close underperforming stores had been hampered by the fact that many had long leases.

"The board is therefore exploring the feasibility of a CVA in order to expedite the rationalisation of its property portfolio, with the clear objective of establishing a right-sized estate of contemporary stores, on economic rents, complemented with a compelling online offer," Mr Walsh said.

Carpetright's plan would see it seek the approval of creditors for closures or rent reductions at underperforming stores, arguing that this would be in the long-term interest of the business.

If given the go-ahead, the closures would take place over the coming months.

The plan would also see Carpetright seek to raise £40m-£60m from investors to fund plans to reboot the business and bring down debt.