Mothercare has gone into the red, and its UK losses have increased, against a “challenging consumer backdrop”.
The mother and baby retailer has reported group adjusted losses before tax of £0.7m for the six months to 7 October 2017, despite UK sales rising in what it described as tough trading conditions. In the same period last year, the company made a £5.9m group adjusted profit before tax.
Despite a 2.5% increase in UK sales to £229m, adjusted pre-tax losses grew 9% to £9.6m from £8.8m year on year.
Chief executive Mark Newton-Jones noted that there had been a “softening” in the UK market towards the end of the reporting period. However, he said the continuing turnaround programme had set the business up to withstand pressures: “Notwithstanding this uncertain consumer backdrop, the Mothercare brand, while not immune, is in a stronger position with a much-improved product and service offer, and a more robust business model.”
As part of this turnaround, 75% of Mothercare stores are now modelled around the brand’s new “club” format. Online sales have also been a focus, and were up 57% for the period worldwide, and by 5.3% in the UK. A total of 42% of sales now come from online.
Internationally, however, Newton-Jones flagged a “challenging” environment. International profit plummeted 28% to £14.9m, hindered in particular by weak trading in the Middle East.
“There is no clear sight as to when things will bottom out in that region,” he said. “We are working with our partners across the globe to help them improve trading by exporting our digital experience and our modern ‘club’ format into their territories. We have expanded our digital presence in a further three countries: India, Pakistan and United Arab Emirates.”
John Stevenson, partner and retail analyst at Peel Hunt, described the figures as the “mother of all profit warnings” and downgraded its full-year profit before tax forecasts by 50% to £11.3m.
Stevenson said: ”The UK turnaround has shown good traction with consumers, underpinned by improved like-for-like sales growth and gross margins. However, recent trading has been much tougher and Mothercare is not a ‘Christmas-led’ business, suggesting more caution is needed for the third quarter, which is built into our downgrades. Until international shows signs of stability, the shares will struggle to retain support.”
As exclusively revealed by Drapers earlier this month, Mothercare is planning to make up to 200 roles redundant at its UK head office. The consultation is in line with the retailer’s “next phase of business transformation”, which will involve a greater focus on its core markets of maternity, newborn, baby and toddler, and move away from product areas such as clothing and toys for older children in the UK.