Shares in Mothercare fell over 10% this morning after it said that its hopes of a recovery in profits had been dashed by the tough trading conditions, with its sales falling in both the UK and overseas.
The troubled retailer, which has been closing stores and agreed a rent reduction deal via a CVA last year, said in a first quarter trading statement that it had “revised” its expectations for trading in the UK market, which was “uncertain and volatile” with “fragile” consumer confidence.
Like-for-like sales in the UK fell 3.2% over the 15 weeks to 13 July, although this was an improvement from the 8.8% decline the previous quarter. Mothercare’s total UK sales fell by 23%, impacted by its store closure programme.
The online business, a key area for its future development, saw sales drop by 12.1% with the group blaming store closures which had affected sales made via iPads in those stores.
International retail sales fell 4.5% in constant currency terms with growth in India (+5.5%), Indonesia (+10.5%) and Russia (+3.4%), offset by a 11.1% decline in the Middle East.
Mothercase stated that its full-year underlying profits would now be broadly the same as achieved last year because the need for “continued promotional activity” against the tough backdrop meant “gross margin improvements in the UK are expected to take longer to materialise than previously anticipated.”
Mothercare stressed that it had “continuing support” from its lending banks with a temporary deferral of planned loan reductions and other waivers under its debt facilities.
Chief Executive Mark Newton-Jones also remained upbeat, saying: “We have continued to make good strategic progress in the first quarter in our transformation to deliver a sustainable and profitable future for the Mothercare brand.”
He highlighted that while the UK retail market was challenging, the rate of decline in like-for-like sales had moderated from previous quarters. However, he said that this had come at the expense of profits because “margin investment in promotional activity has been necessary to stimulate sales, both in our stores and online.”
Newton-Jones added: “Despite a difficult backdrop, we continue to improve our customer offer and have launched a number of new initiatives including specialist sales and service training to all our store colleagues. We have also launched an improved customer credit offer, both online and in- store. At an early stage, we are observing increased basket sizes for those customers taking up this offer.”
The update came hours after Sky News revealed that Mothercare had started negotiating with third parties about a sale or franchising agreement for its UK stores.
The retailer’s domestic store estate now comprises of just 79 stores, down from 134 last year. Its roughly 1,000 stores overseas are already operated on a franchise basis.
Newton-Jones said today: “Our immediate priority is to complete the transformation of the business with a near-term focus on evolving and optimising the ownership, structure and model for UK retail operations as an independent franchise.”
