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Mothercare's £81m loss forces review of UK business


Poor UK trading for maternity and baby products retailer Mothercare meant it suffered large losses in the first half of its financial year despite strong international growth, it was confirmed today.

Like-for-like sales for its UK operations fell seven per cent year-on-year in the 28 weeks to October 8th 2011 resulting in a total group loss before tax of £81.4 million for the period, due in large part to exceptional charges relating to Early Learning Centre, whereas in the first half of 2010 it managed a profit of £0.3 million.

Mothercare has reduced its in-store domestic store portfolio over the last four years by nearly a third but in the face of continuingly bad sales in its core market the retailer today confirmed that it has conducted another review to evaluate the number of outlets it needs in the UK.

This dire trading pattern is in stark contrast to the company’s global business however, which in the first half of 2011 managed to deliver a 15.7 per cent rise in retail sales and 81 new store openings including its first outlets in Latin America and a new joint venture in Ukraine.

A strong international performance helped total group sales rise four per cent to £412.9 million over the period, but with the majority of its revenues still emanating from UK operations the retailer’s net debt has grown to £24.6 million and underlying basic loss per share of 5.1p for the period.

Alan Parker, Executive Chairman for Mothercare, said: “The Mothercare group has had a difficult first half. Whilst the international business continues to perform strongly our performance in the UK illustrates the extent of the challenges facing the business in a weak economic and consumer environment.

“We are announcing today a structural and operational review of our planned UK business size and shape. This review will consider the number, format and location of retail outlets and the plan for e-commerce.

“It will also include the right-sizing of our overheads to fit the new operating base. The review will include the important Christmas trading period and will be completed in the first quarter of the calendar year with implementation in 2012/13.”

Parker joined the business earlier this year and is looking for a new CEO to lead its turnaround after Ben Gordon officially stepped down having announced his intention to leave last month following a profits warning.

Group underlying losses before tax totalled £4.4 million for the period but write downs of UK goodwill and other intangibles (-£55 million) and the cost of restructuring it UK business (-£19 million) further dented its profitability.

It is likely that Mothercare will become even more focused on overseas trading in the coming years and in the first half alone it grew its total international retail space by 15.1 per cent with 74 stores now operating in India and the group on course to achieve its target of 200 outlets in the Asian country by March 2015.

The big question is whether there is a future for Mothercare in the UK or whether like C&A a generation ago it will slowly wind down trading all of its domestic operations.

Matt Piner, Lead Consultant at analyst firm Conlumino, argues that Mothercare has lost its relevance to expectant mothers who used to view it as an essential source of help and information, justifying higher prices.

“With consumers now increasingly confident using the internet and sites such as Mumsnet to educate themselves, the once habitual visit to Mothercare is becoming a thing of the past”, Piner explained.

“Instead, consumers research what they need online and head to the cheapest retailers to buy it – which nowadays normally means one of the supermarkets. Overseas growth fared better and it is no wonder there is so much speculation about whether this will ultimately represent the future of the business.

“In areas like India and the Middle East the brand’s premium, UK heritage fits much better with its higher price positioning, so there is certainly an argument for expanding here, rather than struggling to re-position itself in the UK.”

Published on Thursday 17 November by Editorial Assistant

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