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Homebase plans to end its company voluntary arrangement 18 months early after the UK’s second-largest home improvement retailer renegotiated most of its leases and improved profitability.
The group used the controversial insolvency procedure in 2018 to cut rents and close stores after a brief but disastrous period of ownership by Australian group Wesfarmers.
CVAs give struggling businesses a chance to renegotiate debts with creditors. For Homebase the process had been due to run until August 2021 but will instead terminate in March or April.
“We’re ahead of plan in terms of profit, we’ve reduced the cost base and the business is in a stronger place now,” chief executive Damian McGloughlin said on Thursday.
The number of Homebase stores has fallen from 241 before the CVA to 164.
The group reported earnings before interest, tax, depreciation and amortisation of £3.2m in the year to December 29, ahead of a plan that forecast break-even and a sharp recovery from the previous year’s £114m loss.
The company said that total sales fell, reflecting the store closures, but did not provide a figure. Same-store revenue rose 2.6 per cent.
Homebase said it had now renegotiated leases at 75 stores and that lower rents accounted for a big chunk of £180m in annualised cost savings. The group said “almost all” stores were now profitable as a result, whereas before the CVA 70 per cent of them were losing money.
Mr McGloughlin declined to disclose the average rent reductions secured, although high street chains such as WHSmith and Next have talked of securing leases at a 25 to 30 per cent discount when they have renewed.
Mr McLoughlin said there had been “a bit of an uptick” in sales since the UK general election but would not be drawn on the outlook for this year. He also declined to comment on whether the company would look to capitalise on its recovery by floating on the stock market or selling to a private equity house.
“We’re ambitious about the potential for future growth based on the progress already made,” he said.
Exiting a CVA early is unusual with the process often ending in further restructuring or outright collapse. Carpetright, which also went through the process in 2018, was taken private by its major shareholder after trading failed to improve sufficiently, while Mothercare ended up putting its UK business into administration.
Homebase was bought for £1 by restructuring specialist Hilco in 2018 after a botched attempt by Wesfarmers to rebrand the chain as Bunnings and introduce a wider range of barbecues, building materials and power tools. Under Mr McGloughlin, a former executive at rival B&Q, it has cut costs and shifted its emphasis back to decorative products, accessories and gardening.
It has also worked with concessionaires such as Tapi Carpets to offer extra ranges and use surplus store space. Last year it acquired Bathstore, taking it out of administration, and Dwell, the furniture retailer, will soon be moving into some outlets.
Like B&Q, Homebase also plans to experiment with smaller stores in town locations, offering a narrower range of paints, wallpapers and flooring to appeal to a generation of younger Britons who rent rather than own their homes. Two stores, in north-west England and south London, will open shortly.
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