23rd Sep 2022 20:03
(Alliance News) - Made.com PLC shares tumbled on Friday, as the beleaguered furniture retailer revealed it is considering putting itself up for sale.
It's a move that does not bode well for its shareholders, according to Russ Mould, AJ Bell's investment director.
The sofa seller has put itself up for sale and announced plans for a strategic review. Its fortunes have weakened due to cost-of-living pressures.
It is also eyeing cutting costs as its cash begins to run out. The Financial Times on Thursday reported Made plans to cut a third of its workforce.
Made.com also withdrew full-year guidance citing a "deterioration of trade". This was as the latest GfK index revealed UK consumer confidence has fallen to its lowest level since records began in 1974, providing an ever-gloomier backdrop for retailers.
Made.com shares closed Friday down 27% to 4.19 pence. The shares now trade at just a fraction of the 200p initial public offering price last June.
"When sofa seller Made.com joined the stock market, no-one would have thought the business would have been put up for sale 15 months later after a disastrous trading period," said Mould.
"It floated at a time when people were sprucing up their homes having spent so much time indoors during the various lockdowns. Demand for new sofas was high and a lot of investors presumed growth would continue to be good."
However, this was not the case.
During its time on the London Stock Exchange, Made.com has battled supply chain disruption which ate into revenue delivery, as well as "dramatic" increases in freight costs which widened its loss.
Back in May, it warned of "highly challenging" market conditions, as it downgraded its outlook. This prompted a sell-off of its shares. Just two months later, it warned consumer confidence had deteriorated even further, and inventory costs were beginning to rack up. Its shares plummeted further.
In August, Made.com said it was considering "all options" to boost its balance sheet, which could include an issue of shares. As was now par for the course for Made.com, its shares were sent lower.
On Friday, the firm said the wider strategic review will mull its balance sheet options, which include debt financing, strategic investment or even a sale of the company. It ruled out an equity raise though, saying current conditions are not conducive to raising "sufficient equity from public market investors".
"It's concluded that raising money on the public markets would be a struggle in the current environment, so the options now are to look at debt financing (which may not come cheap given how rates are going up and the company is deemed higher risk), bring in a strategic investor, merge with another business, or sell the whole company," Mould commented.
"Whatever happens, it looks like existing shareholders may be wiped out or be left with a mere fraction of their original investment," Mould concludes.
By Elizabeth Winter; [email protected]
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