Struggling fashion and home wear brand Laura Ashley (ALY.L) is in crisis talks to secure more funding as sales dive.
The retailer on Monday confirmed it was holding crunch talks with its bank, Wells Fargo (WFC).
Falling sales have left the company unable to borrow as much as expected, so Laura Ashley and its owner, MUI Asia, are trying to convince Wells Fargo to unlock cash “to meet the group's immediate funding requirements and to draw down additional amounts to meet ongoing working capital needs.”
“If the group remains unable to access the requisite level of funding, then the company will need to consider all appropriate options,” Laura Ashley said in a statement.
The cash crunch suggests Laura Ashley could collapse into administration if funding cannot be secured, but management downplayed any risks.
“We acknowledge that recent trading conditions, in line with the overall UK retail market, have indeed been challenging,” chairman Andrew Khoo said in Monday’s statement. “There is however a robust plan in place to turn the business around.”
Shares in the company crashed 34% on the update.
The statement from Laura Ashley followed an article in the Sunday Times over the weekend claiming the company was on the brink following a funding crisis. The Sunday Times said Wells Fargo’s lending squeeze had left Laura Ashley with a funding shortfall of £20m ($26m) and the company was asking owner MUI Asia for an emergency cash injection to keep the lights on.
Laura Ashley said Monday its plans “do not involve a cash injection by MUI Asia Limited into the group.” Chairman Andrew Khoo said: “The major shareholders have indicated their continued confidence in the business and are fully supportive of the management team and execution of the transformation plan.”
Alongside the funding update, Laura Ashley said sales fell 10.8% to £109.6m in the 26 weeks to 31 December 2019. The company blamed “weaker consumer spending during the period, which led to a decline in sales of bigger ticket items.” The company will report its half-year results in full on Thursday.
Founded in 1953, Laura Ashley is known for its floral prints and home wear. The company has over 150 stores across the UK and had just over 2,700 staff at the end of last year.
The company has struggled in recent years as high street sales more generally have suffered. Laura Ashley’s sales fell by 3.5% last year and the company fell to a £9.8m loss. Its share price has fallen around 90% over the last 5 years and now trades at penny stock levels.