House of Fraser to push in-house brands

House of Fraser is in talks with lenders to renegotiate its banking covenants in order to fund expansion of its own-brand ranges, according to the Financial Times.

The retailer is pursuing a long-term strategy to raise margins by adjusting its product mix towards a higher proportion of house owned brands, such as Episode, the women’s wear label, and Therapy, the youth fashion brand.

The department store, which was acquired by the Highland Group consortium in November 2006, wants house brands to account for 25 to 30 per cent of sales in the next three years, up from 10 per cent now.

In the latest Christmas trading period, sales of house brands rose 33 per cent, while total sales were up 7.1 per cent on a like-for-like basis.

The retailer is not in danger of breaching covenants this year but the planned increase in own-brand sales means it needs higher levels of capital to buy stock next year, requiring it to reset its covenants. The company is looking to reset both its cash cover covenant and the ratio of net debt to earnings before interest, tax, depreciation and amortisation.

The retailer has about £180m ($284m) of debt and has offered lenders an extra 1.25 percentage points of interest in the first year, which will be reduced to 1 percentage point thereafter.

However, due to the reduction in debt, it is not expected to change the net interest payment.

The company has set lenders an “early bird” consent deadline for March 5, while the final deadline is March 12.

More than 60 per cent of the company’s banks have pre-approved the change. House of Fraser needs the consent of two thirds of its lenders.

House of Fraser generated £55m earnings before interest, tax, depreciation and amortisation in the year to January 2009. Ebitda is expected to be about £70m in the full year to 2010.