VF Corporation, the owner of The North Face, Eagle Creek, Jansport, Napapijri and several fashion apparel brands, has acquired a stake of 4.9 percent in Blacks Leisure Group, stating that it wishes to support the turnaround plan launched by the management of the embattled British outdoor retailer. This plan is to be financed through a new alternative fund-raising program initiated by Blacks on April 30, requiring approval by a simple majority of shareholders’ votes.
VF formally acquired the stake through VF Luxembourg, which bought share warrants from the Bank of Scotland and then swiftly converted them into shares. The Bank of Scotland itself obtained the warrants as part of a financial rescue package that was approved by shareholders last year. VF said it had no intention of building up its shareholding in Blacks any further. As the owner of The North Face, the company has a strong interest in ensuring that Blacks remains afloat and continues to offer retail space to high-end outdoor brands.
The conversion of the warrants into shares dilutes the stakes of other shareholders including Sports Direct International (SDI), the aggressive British sports retailer, which saw its share of Blacks reduced from 28.5 percent to 27.15 percent. This shareholding is still sufficient for SDI to block initiatives requiring approval by investors representing 75 percent of the company’s shares – which is exactly what it did in February, sabotaging a proposal by Blacks Leisure to raise £20.3 million (€23.3m-$31.0m) for its turnaround plan through the issuance of new shares. SDI subsequently said it was considering a bid for Blacks but walked away from it before a deadline imposed by the U.K. Takeover Panel to issue a full-fledged bid – so that SDI is barred from making another offer for Blacks until September.
Blacks’ management has now come forward with an alternative proposal to raise £19.7 million (€22.6m-$30.1m) net of expenses for its recovery plan, which is very similar to the February proposal but requires only a simple majority of the votes and could therefore be approved without the support of SDI. The fund-raising, which is underwritten by Singer Capital Markets, is to be submitted to the approval of a general shareholders’ meeting on May 20.
The new fund-raising plan includes an open offer and a firm placing that will result in the issuance of nearly 39.3 million new ordinary shares. The issue price was set at 54 pence (€0.62-$0.83) per share, which represents a discount of 12.2 percent off from the closing middle market price of the ordinary shares on the day before the proposal. It looks almost exactly the same as the February offer, but a technical aspect of the new one, described by Blacks’ advisers as “the Gazette route,” should enable it to go through with a simple majority.
As repeatedly announced by Blacks, the proceeds are meant to speed up the implementation of its turnaround plan, enabling it to open up to 35 new outdoor stores, to upgrade existing stores and to cancel the group’s seasonal peak working capital facility of £7.5 million (€8.6m-$11.5m). More precisely, it stated that nearly £9 million (€10.3m-$13.8m) would go to the opening of up to 15 outdoor stores by the end of the current financial year and another 20 stores by the end of the next financial year. Then, £6.6 million (€7.6m-$10.1m) would be invested in the refurbishment of up to 130 existing stores by the end of the next financial year.
Meanwhile, Blacks reported much-improved results for the financial year ended on Feb. 27, with comparable sales up by 5.4 percent. Its performance improved as the year progressed, with comparable sales jumping by 9.5 percent for the second half of the year for the ongoing estate, after the retailer removed 88 loss-making stores as part of its Company Voluntary Agreements (CVA). This left the group with a network of 313 stores, comprising 92 Blacks, 208 Millets and 13 Freespirit stores.
On the whole, sales declined by 7.0 percent to £249.0 million (€286.1m-$380.5m) for the year, owing to the reduction in the number of stores and the insolvency of Sandcity, which ran retail and wholesale operations for O’Neill in the U.K. Combined with the CVAs, this reduced the number of Blacks Leisure’s stores by 25.5 percent.
The company reached a gross margin of 50.7 percent for the financial year, down from 54.3 percent for the previous year, which was blamed on the market situation and close-out sales at stores affected by CVAs. For continuing operations only, the group’s gross margin stood at 51.6 percent.
The Blacks Leisure group ended the year with an operating loss before exceptional items of £14.3 million (€16.4m-$21.9m), due to the rough situation in the first half of the year and the weak performance of the boardwear division. The exceptional charges amounted to £30.1 million (€34.6m-$46.0m), including impairment charges of £7.1 million (€8.2m-$10.8m), charges related to the CVA reaching £19.0 million (€21.8m-$29.0m) and exceptional finance costs of £3.0 million (€3.5m-$4.6m).
The bottom line was a loss of £49.4 million (€56.8m-$45.5m), compared with a loss of £14.8 million the previous year, although the comparison is distorted by the many exceptional costs (more in The Outdoor Industry Compass).
