Parent & child products retailer Mothercare has today revealed the full extent of its decline in profitability during the last financial year, as its CEO promises to transform the business by 2015.
Simon Calver, who became CEO of Mothercare in February, has set out the details of a three-year ‘transformation and growth’ plan, after preliminary results showed that the business made a loss before tax after exceptional charge and other non-underlying items of £102.9 million in the 53 weeks ending March 31st 2012.
This compares to a profit of £8.8 million made during the previous financial year, with the dramatic decline largely caused by a significant reduction of its store portfolio and other restructuring costs which amounted to £104.4 million.
Mothercare closed 62 UK stores during the year, and intends to exit a further 111 outlets in this country before 2015, but even when the significant costs of this portfolio rebalancing are excluded underlying profits before tax for the retailer still shrunk from £28.5 million in 2011 to just £1.6 million.
The big problem for Mothercare is its core UK operations which are coming under increased pressure from competitors both online and in the form of supermarkets. Over the 12 months to March its UK like-for-like sales fell 6.2 per cent year-on-year.
Calver said: “We have a long way to go, and the plan to bring the UK business back to acceptable levels of profitability will take three years.
“My team and I are up for the challenge and, whilst there is much to do in this difficult economic climate, I look forward to delivering the ‘transformation and growth’ plan. As a team, this will be our most important delivery yet.”
On the strength of the retailer’s forward looking strategy it has renegotiated a new financing deal worth £90 million which has revised covenants and will run until May 2015, with its net debt balance standing at £20.1 million at the year-end.
The transformation and growth plan breaks down into four key objectives: Reducing costs through efficiencies such as staff reduction and better terms with suppliers; reducing the UK store portfolio down to just 200 shops which will all have improved service levels and products; accelerating international expansion; and improving multichannel services both at home and abroad.
Mothercare now operates more than 1,000 international stores and it is clear that the business is keen to decrease its dependence on UK sales levels, which look unlikely to improve much in the short-term, particularly in light of the fact that its global stores made an underlying profit of £34.9 million over the year whilst its UK business lost £24.7 million.
Alan Parker, Chairman of Mothercare, said: “Looking ahead to the immediate future the UK market remains challenging, however, International continues to grow.
“Our focus on cost reduction is a priority in achieving a performance improvement this year. Overall we now have a robust plan for transformation and growth with new, strong leadership capable of delivering the results.”