Mothercare shares slide 14% after warning on financial covenants waivers

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Mothercare update

Shares in Mothercare have taken a hit after the retailer today warned downgraded its profits forecast and requested a waiver of certain financial covenants.

The maternity and baby good retailer, which issued a profit warning amid its Christmas update in January and widening losses in its half-year report in November, said trading had been in line with expectations since the start of the year – but admitted the market was “challenging”.

While the firm expected net debt by the end of its fiscal year to be “slightly better” than the £50 million previously guided, it downgraded its adjusted group profit before tax forecast to the lower end of the previously guided range of £1 million to £5 million.

Mothercare said it was now working with financing partners in regards to financing needs for FY19 and beyond.

“We forecast our borrowings to increase towards the limit of our total committed and non-committed facilities at various points from the start of the new financial year, and will therefore require waivers of certain financial covenants,” the retailer said.

“We are also exploring additional sources of financing to support and maintain the momentum of our transformation programme.

“All of these discussions are ongoing.”

The news has prompted Mothercares shares to drop 14 per cent to 21.3p in afternoon trading.

The retailer, which has been in the midst of a turnaround strategy and cost-cutting savings drive, said it was continuing with its strategy of closing UK stores and bolstering online sales.

“The retail sector continues to face a number of pressures that are clearly having a profound impact on the sector as a whole,” chief executive Mark Newton-Jones said.

“Against this backdrop we are performing in line with our expectations and remain a cash generative business, but we also need to push ahead with our transformation strategy to meet our customers’ needs and continue adapting to evolving shopping habits around the world.

“We are working together with all our stakeholders, including colleagues, franchisees, financiers, suppliers and pensions trustees on this next phase of our transformation and their part in delivering these plans.

“The support already being shown gives us confidence that, despite the challenges, there remains a clear way forward for Mothercare to realise its ambition to be the leading global retailer for parents and young children.”

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