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Mothercare melts

Weak sales overseas and in the UK mean full-year profits at Mothercare will be lower than expected.
January 8, 2014

Shares in Mothercare (MTC) slumped 30 per cent on the back of a profit warning after a slowdown overseas and problems in the UK led to weak sales in the third quarter.

IC TIP: Hold at 291p

Worldwide network sales fell 4.4 per cent in the 12 weeks to 4 January, a sharp deterioration from the 3.9 per cent growth reported in the second quarter. After 40 weeks, sales growth is running at 1.4 per cent, compared with 4.4 per cent at the half-year stage. The biggest blow to Mothercare came from its overseas operations. Here, retail sales grew just 0.4 per cent, or 3.3 per cent at constant currencies, a significant slowdown from last quarter's 12.4 per cent and 12.6 per cent respective growth. Trading was hit by currency deflation and weaker-than-expected sales in some key markets, namely Russia and the Middle East. Year-to-date, underlying sales growth is up 9 per cent.

A competitive trading environment and weak footfall hit trading in the UK. and squeezed margins. Like-for-like sales fell by 4 per cent, much worse than the 1.9 per cent fall reported in the second quarter. Year-to-date comparable store sales are down 2.3 per cent. Multi-channel sales did rise 15 per cent, but online sales from the Early Learning Centre were impacted by a weak toy market. This left Direct in Home sales 1 per cent lower, compared with an 8.3 per cent increase in the second quarter.

Chief executive Simon Calver, who has been spearheading Mothercare's turnaround strategy, has warned that a cautious consumer outlook and currency deflation for the rest of the year means full-year profit expectations are "below current range of market forecasts". City analysts have slashed full-year profit estimates, with Numis securities cutting its forecasts to £8m from £17m.