Mike Ashley says Debenhams ‘on brink of collapse’
SPORTS Direct owner Mike Ashley has claimed Debenhams is on the brink of collapse as he urged the struggling retailer to accept his offer of a £40m loan to avoid a Christmas disaster.
Shares in Debenhams dropped more than 3% yesterday after a letter from Mr Ashley to the retailer’s boss Sergio Bucher emerged in which he claimed speculation points towards the company having “zero chance of survival”.
In the letter, first seen by The Daily Telegraph, Mr Ashley goes on to urge Mr Bucher to accept a £40m interest-free loan from Sports Direct, which is its largest shareholder. He also warned that Debenhams faces collapse without urgent action.
He wrote: “If I’m sounding extremely frustrated – well I am. We don’t want to see Debenhams fail. It’s not in our interest to see it fail, but without something changing rapidly all of the shareholders risk getting wiped out.”
Debenhams, which has nine stores in Wales, declined to comment to the Press Association.
The correspondence emerged as Mr Ashley told investors that trading in November was the worst on record and said retailers are likely to be pushed over the edge.
Figures released earlier this week showed footfall to high streets and shopping centres suffered the worst November decline since the recession. Mr Ashley has said he faces “significant challenges” turning House of Fraser around, as profits at Sports Direct took a hit from the department store acquisition.
The group’s underlying pre-tax profits dropped 26.8% to £64.4m in the 26 weeks to October 28, the period in which it acquired House of Fraser out of administration.
However reported pre-tax profits were 62.4% higher at £74.4m and underlying earnings excluding House of Fraser were up 15.5% at £180.3m. Group revenue grew 4.5% to £1.79bn, reflecting growth of almost 30% in both premium lifestyle sales and non-European retail as well as the £70m added by House of Fraser.
Mr Ashley reiterated his pledge to make House of Fraser the Harrods of the High Street, but said it would be a challenging process.
“I believe the previous House of Fraser senior management team traded the business while it was insolvent for a long time. This means we have significant challenges ahead in turning House of Fraser around,” he said.
“However, I genuinely believe we have acquired a fantastic opportunity and, with the efforts of Sports Direct and House of Fraser teams, and the support of the brands, local councils and landlords, we can turn House of Fraser into the Harrods of the High Street.”
Meanwhile, in the UK sports retail segment, which accounts for 62% of group revenue, sales were up by 0.2%. This reflected growth in online sales but a drop in store revenue, partly due to store closures which were part of the group’s elevation strategy as well as the overall challenges facing the high street.
Speaking to the Press Association, deputy chief financial officer Chris Wootton said the group was not immune to the problems in UK retail. “It’s not all sunshine and roses,” he said.
His sentiments echoed Mr Ashley’s warning to MPs earlier this month when he said the majority of the high street is “already dead”.
Mr Wootton also said that the group’s investments in other retailers including Debenhams, French Connection and Game were “longterm strategic investments where we’re looking to collaborate”.
It has long been speculated that Mr Ashley would stage a takeover of Debenhams, in which Sports Direct has a 29.7% stake. During the period, the group recognised £76.7 m of value reductions relating to Debenhams and other investments.