Mothercare warns over profits following dire Christmas
Mothercare warns over profits following dire Christmas
Mothercare warns on profits after Christmas sales drop
10 January, 2018, 11:43
Mothercare shares slumped in early trading by around 30% to 45p. Online sales, which now represent around 42% of total sales, fell 6.9%.
Mothercare said it had reduced its total United Kingdom retail space to 1.4m sq ft in its store closure programme and that total sales were lower as a result.
"Admirable, perhaps, but with competitors slashing prices ahead of Christmas amid (justified) fears of a slowdown in consumer spending, it looks as if the "conscious decision" to remain at full price prior to Christmas but to then discount more heavily in the end of season sale was a mistake", he said.
CEO Mark Newton-Jones has warned the retailer now expects adjusted group profit for the year to be in the range of GBP1-5m (US$1.35-$6.77m), having previously predicted profits of GBP10m. Competitive pricing by rivals such as AB Foods' (ABF.L) Primark unit and online retailers including Amazon (AMZN.O) also eroded its margins.
The firm added, however, that key markets were showing signs of improvement towards the end of the period. "While the majority of its stores are now in the new club format, improving the store experience further is essential to return like-for-like sales to growth, with at least a 2% rise necessary for Q4 to avoid a 2017/18 full-year decline".
Mark Newton-Jones, Mothercare chief executive, added: "As we signalled in November, there has been a softening in the United Kingdom market with lower footfall and website traffic resulting in lower spend in both stores and online".
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Forecasts for the year to 30 March 2019 have been chopped to £7.5mln from £13mln. The year prior, Mothercare reported pretax profit of GBP7.1 million and adjusted pretax profit of GBP19.7 million on revenue of GBP667.4 million.
Its model now points to a United Kingdom loss of £17.9mln for the year, with the group as a whole weighing in with profit before tax of £0.5mln, versus previous expectations of £11.3mln. Newton-Jones argued it still had "sufficient liquidity and covenant headroom" within its existing facilities.
Mr Newton-Jones continued that "whilst the performance of the business has been challenging in the last few months, we remain singularly focused on transforming Mothercare to be the leading global retailer for parents and young children".
Mothercare's woes echoed that of another retail peer reporting last week.
Online sales in the United Kingdom fell 6.9 percent during the 12 weeks to December 30, including the key Christmas season.
Since taking the helm three years ago, Newton-Jones has closed 100 loss-making United Kingdom outlets and modernised 70 per cent of the remaining stores. It was due to lower footfall and spend, both in stores and online, following the continuation of consumer trends flagged in half year results.
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