Blacks Leisure has warned that tough trading at its boardwear division may result in the sportswear retailer breaching its banking covenants and has struck a standstill agreement with its bank.
Blacks said the group has underperformed against budget for the first six months of the financial year to August 31, due to the group’s boadwear division and at its loss-making stores.
In a statement, the retailer said: “As a result of this underperformance, the directors anticipate that there will be a financial covenant breach under the company’s bank facilities when tested at the end of September.”
Blacks continued: “The company has therefore been holding constructive discussions with its bank, Lloyds Banking Group, regarding this expected breach as well as the restructuring plan that the company is currently considering to turnaround the business which, in particular, seeks to address the group’s loss-making stores and boardwear division.”
The move follows reports that Blacks Leisure was set to put its Sandcity business, which operates the O’Neill boardwear shops into administration. It is understood that KPMG has been put on standby as administrator. This move is understood to be imminent.
The retailer’s bank has agreed in principle to a standstill until November 30, subject to documentation and the company delivering a restructuring plan, acceptable to the bank.
The plan must address the future viability of the group, including actions to achieve an exit of the company’s loss-making stores, by October 30. The retailer said any waiver of the covenant breach is likely to be conditional upon such a restructuring plan being implemented.
Blacks said in its statement that it has appointed KPMG to work with it to evaluate the full range of options available. It said: “If a waiver of the covenant breach is not ultimately given, the ongoing prospects of the group will be uncertain.”