Poundstretcher’s 2024 takeover by US investment firm Fortress was seen as a fresh start for the discount chain, coming in the wake of a high-profile CVA and successive years of losses.
But two years down the line, the retailer is still very much in choppy waters, only narrowly being saved from administration after the High Court approved a new restructuring plan last week.
So what triggered the latest liquidity crisis? How does it expect to improve trading now a plan is in place? And why was the judge unimpressed with the turnaround strategy?
Poundstretcher’s past
It all started way back in 2020, when the CVA took place, securing rent reductions that helped Poundstretcher swing from a pre-tax loss of £45.3m to £88.8m profit in 2021. But the recovery was short-lived, with profit plunging to £8.9m in 2022 as turnover fell. By FY24, the year before Fortress’s takeover, it had slipped back to a £9.8m pre-tax loss.
This is when things might have been expected to improve, as new management began reshaping the product strategy and cutting costs. But “reduced consumer confidence” helped ensure otherwise, according to court filings. Crucially, performance “continued to deteriorate significantly”, with inflation and rising national living wage and employer National Insurance costs adding to the mix of pressures.
On a pre-restructure basis, the chain was forecasting an EBITDA loss of £6m in FY26, with the cost of leaseholds driving profitability further down, despite the earlier CVA.
At the same time it was running out of cash, threatening its ability to pay staff and suppliers. In February this year Fortress stepped in with a £20m funding facility, with a non-binding agreement to provide another £10m. £4.5m of that initial £20m, and any additional support needed, was conditional on the restructure plan being sanctioned.
That left the business trying to secure approval from landlords for a fresh round of rent cuts.
Rates and rent
In March this year, analysis by property adviser CBRE identified a number of stores where contractual rent was above market value. The restructure plan subsequently split Poundstretcher’s 300-store estate into categories, including 55 sites where rent will be cut by between 25% and 75%, and a further 47 where it will be reduced to zero for a three-year period.
Poundstretcher has insisted no store closures are planned. However, landlords facing rent reductions can serve notice to terminate leases within 60 days of the restructure taking effect, while those on zero rent have rolling break options.
Business rates arrears will also be waived for compromised stores.
But not all landlords agreed to the proposals. Two – Global Property Projects and Global Property and Developments – said it had not been properly explained to them why guarantees initially provided by Poundstretcher’s parent company should now be compromised.
Despite that opposition, Poundstretcher said the plan was backed by 93% of creditors by value.
‘This is not a ringing endorsement’
The judge, Mr Justice Hildyard, approved the plan after considering what would likely happen if did not go ahead, including Poundstretcher being “unable to meet its funding requirements [of £2.8m] in June 2026, which will substantially increase [to £9.7m] in July 2026”. Poundstretcher had told the court this would leave it with no choice but to file for administration.
So Poundstretcher lives to trade another day. But as for its prospects, the judge was distinctly unimpressed by CEO Andy Atkinson’s turnaround plan, arrived at with advisors Teneo. It included a further range reset, a shift to source some lines directly from the Far East, and store rotation.
“This, I feel bound to say, has struck me as lacking the detail and particularity I would expect,” the judge said. “In the end, it seemed to me… that I am in effect being invited to rely on the fact that financially experienced and successful entities like the Fortress Funds do not spend the considerable amount of time and money on a plan of this nature as a false feast.
“The further comfort [Tom Smith KC, representing Poundstretcher] offered was that I need not conclude such recovery is close to being guaranteed: only that it has a reasonable prospect. This is not a ringing endorsement.”
Poundstretcher may have been saved from an almost certain administration for now, but it is far from out of the woods.
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