May 20, 2019
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Arcadia sales still falling, are CVA and international exit imminent?

May 20, 2019

Analysts are expecting fashion retail giant Arcadia to announce its restructuring as early as this week with the sale of its business outside of the UK also being predicted along with the closure of 57 of its stores.

Topshop is one of Arcadia's chains that has seen falling sales

And it has also emerged that the owner of Topshop/Topman, Miss Selfridge, Wallis, Evans, Burton and Dorothy Perkins, saw another sales drop in the year to August 2018. Total sales fell by 10.5% and like-for-like sales were down a hefty 7.5%.

The Times reported that Arcadia sent its company voluntary arrangement (CVA) plan to landlords last week, which included the sales figures.

And the report also said that the company is mulling the sale or outright closure of its largely loss-making international operation.

Particularly worrying is the fact that the star of the portfolio, Topshop, seems to be acting as the biggest drag on the group’s overall performance. The London flagship was for many years a must-visit fashion destination and was able to attract shoppers who were more used to buying luxury fashion, as well as more mainstream consumers. But it has seen its lustre fading in recent years. 

In the key Christmas trading period last year, the report said that like-for-like sales at the chain fell a very large 20%.

The company has also been affected by credit insurance specialists withdrawing or reducing coverage for its suppliers, which has meant more goods need to be paid for upfront, reducing cash flow.

As a remedy to all of this, the CVA proposals include rental cuts across the entire store portfolio averaging 30%. 

While an announcement around the CVA has been expected for some time, it’s believed to be imminent given that Arcadia has a major rent bill due late next month and urgently needs to have a deal in place before then.

And with a massive pension fund deficit, there's an added complication. There have been suggestions that the company has proposed handing over the flagship Topshop building at London’s Oxford Circus to the pension fund trustees in order to allow it to cut its annual payments by half. But the building, which is estimated to be worth around £400 million, also has a £300 million mortgage on it, reducing its value as bargaining tool.

Landlords of its other properties are also reported to be demanding more investment in those properties by Arcadia as part of any rent-slashing deal. Landlords generally have been hit by a wave of CVAs and are more prepared to play hardball in return for supporting these deals. In particular, they want the tenants who are paying zero or reduced rents to spend money on making the shops more attractive/valuable.

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