Mothercare shares slide as sales continue to fall

Struggling specialist infants and young children-focussed retailer Mothercare was still performing in line with its full-year guidance in its fourth quarter, it said in a trading update on Thursday, with UK like-for-like sales down 8.8% year-on-year in the period, and down 10.8% for the full-year.

The London-listed firm said that total UK sales were 14.5% lower in the quarter ended 30 March, and 15.4% for the year as a whole, while its retail space shrunk by 21.2% across both the quarter and the year.

Looking internationally, retail sales in constant currencies were down 4.9% in the quarter and 2.4% for the year, while in actual currencies sales overseas shrunk 4.5% in the quarter and 5.7% in the year.

Retail space was up 5.5% in Mothercare’s international sector for both the quarter and the year, however.

The board said it was making progress with its ongoing transformation plan, having announced the sale of the Early Learning Centre operation to The Entertainer for £13.5m on 12 March, which enabled a further reduction in the company’s bank debt and a focus on its core strategic priorities.

It said it had also completed changes to create a leaner organisational structure, with the establishment of three new internal divisions - Mothercare Global Brand, Mothercare UK and Business Services.

Mothercare said it completed the UK store closure programme successfully ahead of schedule, shuttering 40 stores in the last three months.

The UK estate totalled 80 stores as at 3 April, down from 137 in the prior year, representing a reduction in space of 30%.

Mothercare said it was on track to deliver at least £19m of annualised cost savings.

Looking internationally, Mothercare said retail sales were down 5.7% at constant currency in its core overseas markets, which the board said was driven primarily by economic and trading challenges in the Middle East.

Growth in the quarter was observed in the core markets of Russia, India and Indonesia.

Retail space in the international sector at the end of the quarter of totalled around three million square feet, with 1,227 stores.

In the UK, the board noted that the like-for-like sales decline of 8.8% was an improvement on the prior two quarters, with that driven by clearance stock volumes in closure stores, which diluted gross margins but cleared all inventory in those locations.

That clearance activity had “significantly impacted” online full-price sales, however, as volumes switched to closing stores.

“We have continued to make significant progress in our final quarter as we continue our strategic transformation to deliver a sustainable and profitable future for Mothercare,” said chief executive officer Mark Newton-Jones.

“The UK store closure programme has been completed ahead of schedule and we now have 80 stores in operation, down from 137 stores a year ago.

“Whilst this has been a difficult but necessary process to right-size the UK, it has meant that we have had to say goodbye to many loyal and longstanding colleagues.”

Newton-Jones said the company was continuing to manage its cash “tightly”, and had further reduced debt levels as part of its aspiration to be bank debt free by the end of 2019.

Reduction in debt had also been aided by the sale of Early Learning Centre, which gave the firm us a new UK concession arrangement for its toy category with The Entertainer, who would bring our customers a “broader and stronger” product offer.

“The disruption we have seen from both the organisational changes and the UK store closures is now largely behind us.

“We expect a continued impact on our business given the volume of clearance stock we have sold in recent months.

“Against this background, we remain on track to deliver on our full year expectations.”

Looking ahead, Newton-Jones said the board was expecting market conditions in the UK and in some international markets to remain challenging.

“We enter the new financial year in a more robust position as a restructured business fit for the future and with reduced levels of debt.

“We have a significantly smaller UK store estate and our International operations remain cash generative.”

As at 0943 BST, shares in Mothercare were down 7.57% at 20.66p.