What went wrong for the Mike Ashley-backed retailer?

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A BRIEF CALENDAR

2013: Findel, known as Studio Retail until 2020, has sold its healthcare division to LDC for £24million.

2015 : Findel has sold its Kleeneze business to CVSL for £3.4m.

2016: Findel has sold its e-sports retail business, Kitbag, to US licensed sportswear and merchandise supplier, Fanatics Inc, for £13.9 million.

Sports Direct owner Mike Ashley has expressed interest in the Findel. He acquired an 18.9% share in the company.

2019: Mike Ashley’s Sports Direct increased its stake in Findel, which had rebranded Studio Retail Group this year, to 30% and launched a takeover bid for the company. Findel shareholders rejected the takeover bid, calling it “opportunistic” and a “significant undervaluation” of the company and its future prospects.

2020: In April, Studio drew down an £85m revolving credit facility (RCF) and £200m securitization facility to ensure it had sufficient cash for its short-term needs.

The facility was fully drawn on March 27, 2020, resulting in net debt of £53m or balance sheet cash of £32m.

Studio said the margin was an improvement of £5m from what it would have otherwise expected due to “a particularly cautious approach to cash outflows in the week following the lockdown announcement, which has since been cancelled”.

In December, Studio revealed that profits and sales had soared during the pandemic, but it was undertaking a strategic review to explore sales options after receiving a letter from major shareholder Frasers Group, formerly Sports Direct, which said that the company was “significantly undervalued”.

The board has appointed Stifel as financial advisor to conduct a formal sale process.

2021: Studio has sold the Findel Education business to West Moorland 221 Limited, a company set up by private equity firm Endless, for £30m.

In January, Studio said it saw a 32% increase in sales during the Golden Quarter.

In April, Studio said it had not found a buyer for the business. “Despite extensive discussions with many of these parties, discussions have not progressed beyond the receipt of qualified, indicative and non-binding expressions of interest for the company,” he said.

In June, Studio reported rising profits in a “transformative year.”

Pre-tax profits rose 513% to £41.7m in the year ending March 26, 2021 and sales jumped 33% to £578.6m.

2022: Studio is bolstering its leadership team by welcoming 35 members to its data team in early January.

On Jan. 31, Studio warned that earnings would fall below market expectations due to “shipping issues.”

The group revealed that widespread supply chain challenges are not only leading to higher shipping costs, but also late arriving unsold inventory, which will need to be sold throughout 2022.

Product sales in the eight weeks to Nov. 25 were down 21% year-on-year, but in the remaining five weeks of its third quarter, they were up 9%.

Studio Group Managing Director Paul Kendrick said: “The fundamentals of Studio’s business model are strong, despite market challenges that have been exacerbated by our excessive commitment to short-term storage.”

The retailer said it was exploring a range of options to meet a need for working capital financing, including discussing its current level of working capital with its long-standing UK lenders.

On February 14, Studio called on administrators after failing to secure a £25m funding loan.


THE REASONS

Studio’s problems were short-term rather than caused by long-term structural issues. In fact, the online retailer has been one of the best performers during the pandemic as sales and profits have soared.

The supply chain crisis has affected many retailers over the past six months, but Studio appears to be its first big casualty. The excess stock he had following shipping delays during critical Christmas trading meant he needed extra working capital while he sold it and unfortunately his lenders weren’t willing to give him the requested short-term loan of £25million.

However, with a fundamentally sound underlying business, that’s probably not the end of the line for Studio. It’s also unclear whether Mike Ashley’s Frasers Group will attempt to buy Studio from the administration.

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