Mothercare hit by UK slowdown and Early Learning Centre writedown
Mothercare posts a pre-tax loss of £104.4m, with its UK division proving a drag on sales
guardian.co.uk, Thursday 24 May 2012 08.49 BST
Mothercare has posted a pre-tax loss of £102.9m as the maternity and children’s clothing retailer warned of a “tough” UK market.
The struggling chain is undergoing a sweeping £35m overhaul that will see one-in-three of its UK stores closed and the loss of around 800 jobs. The majority of the losses were accounted for by a £55m writedown relating to Mothercare’s Early Learning Centre outlets, as well as £26.4m hit from the store closure programme.
The company was boosted by its overseas business, where it has over 1,000 stores in more than 50 countries, with worldwide network sales – UK sales, franchise revenues and international sales – rising 6.4% to £1.2bn. However, the UK – which accounts for 45% of the business – dragged down performance with like-for-like sales falling by 6.2%. The annual loss compares with a profit of £8.8m last year. Speaking in the wake of official figures that showed a 2.3% fall in sales on the UK high street last month, Mothercare’s chief executive, Simon Calver, said: “Overall the market in the UK still remains tough and the high street is tough. I don’t think many of the economic fundamentals have changed.” Mothercare plans to focus on out of town stores in its UK revamp, which will result in its UK portfolio reducing from 311 stores to a “profitable core” of 200 by March 2015 – dumping stores that lose £13m a year collectively. The retailer will also focus on its own brand range and exclusive third party tie-ups.
“The key thing with this plan is that all the initiatives, especially in the early years, are about self-help,” said Calver, referring to the store closure and cost-cutting programme, which will affect 730 store staff and 98 back office employees. Calver said Mothercare was suffering from its own version of the squeezed middle, caught in a pincer move between high-end retailers and low-cost competitors such as supermarkets. Admitting that Mothercare’s pricing had given a foothold to supermarkers, Calver said a new lower cost range would be launched this summer. “We need to ensure that we have the right pricing … and focus on that. We have got a new range coming in July which will be double-digit reductions in prices for our customers.” Calver, who took over as Mothercare boss this month, said UK customers viewed Mothercare as an “incredible brand” but the retailer did less well on the value-for-money issue.
Analysts say Mothercare has been assailed by the cheap offers at supermarkets, the fashion appeal of specialist clothing outlets and the choice offered by the internet. Calver, formerly the boss of Lovefilm, said the company’s out-of-town outlets would appeal to internet-savvy shoppers. “We have seen the out of town stores continue to perform well … it is a very important part of the portfolio especially if people are going online beforehand and want to see the stores to test and experience [products] themselves.”
Calver said Mothercare’s international expansion will focus on China, India, the Middle East and Latin America. The company said it expected to open 150 new stores abroad this year, with international sales growing by 20% per year over the next three years. Despite the poor UK outlook, shares in Mothercare rose 12.5% to 185p in early trading.