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Uplift in Mothercare’s sales as margins stabilise

Mothercare has stabilised its margin after five years of decline, thanks to shorter discounting periods and better planned promotions.

“We have done the equivalent of two years’ work in the space of one year,” said chief executive Mark Newton-Jones, who took up the role on an interim capacity in March last year and on a permanent basis the following July.

He was speaking as the baby and kidswear retailer revealed it halved its pre-tax losses from £26.3m to £13.1m in the year to March 28, off the back of £1.2bn in group sales.

The losses in its UK business narrowed from £21.5m to £18m during the year, as sales grew 0.9% to £458m. Like-for-like UK sales were up 2%.

“During the year, we fended off a hostile bid [from US retailer Destination Maternity] and raised £100m from shareholders who supported us and gave us the encouragement to continue with our strategy,” said Newton-Jones. “It is very early days and there will be bumps in the road along the way, but this shows we have started to turn our strategy into reality.”

Mothercare closed 31 loss-making UK stores during the period and relocated one. It changed its Gateshead and Solihull stores to a new format, with a café and soft play area on a mezzanine level, an Early Learning Centre and individual departments to give more of a ‘boutique’ feel.

Newton-Jones said sales in those stores increased by 10-15% as a result, and conversion rates increased to between 50-60%, up from 40%.

It opened a new 150,000 sq ft store in this format at the Sprucefield shopping centre in Lisburn, Northern Ireland, on May 20 replace a smaller 6,000 sq ft city centre store.

“It has been our most successful ever launch with a better performance than Gateshead and Solihull, which were both fantastic so this shows we are on the right track,” he said.

The retailer plans to refurbish a further 35-40 stores during the year ahead and close 25-30 underperforming stores.

“We intend to spend between two and three times the level of CAPEX the business has ever spent in a year on this,” he added.

The retailer also trialled five clothing-biased stores in Peckham, Woolwich, Surrey Quays, Cheltenham and Livingstone, which have proved “very successful”. It increased the clothing mix from 40% to 80%, and decreased both home and travel, and toys from 40% to 15%, and 20% to 5%, respectively.

“Since we undertook these changes three to four months ago, sales in the stores have grown by 3% and margin by 6-10%,” he said.

“We are intending to start rolling this out to other stores and I estimate that we have between 20-25 stores in terms of size and the markets that they are in that would be suitable for this kind of format.”

It is also continuing to review the product mix and pricing architecture.

International like-for-like sales were up by 5.6%, with total overseas sales rising 2.2% to £745.4m and profits up 1.3% to £45.9m. The company opened 52 stores during the period, ending the year with 1,273 stores in 60 countries, and expects similar growth in the year ahead.

“We also see international online sales as a huge opportunity, as it currently stands at 2% of international sales,” added Newton-Jones.

Mothercare refinanced during the period so ended the year with net cash of £31.5m compared with net debt of £46.5m in 2014.

Online sales were up 18%, accounting for 30% of total UK sales.

@Tara_Hounslea

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