There was a time when most parents in the UK would head to Mothercare (MTC) to buy all the clothes and accessories needed for their little ones. Recently, though, the baby and toddler specialist has lost its allure, with poor service, badly priced products and drab stores. Competition is fierce, too, with supermarkets and online upstarts all trying to get a piece of the action.
- One year into a three-year transformation plan
- Relaunched value clothing range
- Move to own-brand-weighted product mix
- Digital platform growing sales
- Internationally strong
- Sales still falling in UK
- Customer service still poor
Now, though, things are starting to change, albeit slowly. Under the new stewardship of Simon Calver, Mothercare is one year into a three-year 'transformation and growth' plan to help reinvigorate the company, cut costs, slash UK store numbers, stabilise sales and margins, and return the UK business to profitability. So far, the plan seems to be working and, given the strength of the international division, which generated £250m of reported sales last year and increased underlying operating profits by a fifth to £42m, profits could balloon in the coming years if the UK can be restored to health. The sensitivity of the group to small improvements in the UK was evident in last year's fivefold increase in underlying pre-tax profits to £8.3m following a 12 per cent reduction in UK losses to £21.7m. Exceptional charges pushed the reported pre-tax loss to £21.5m, though.
Importantly, UK sales declines are showing clear signs of easing. Like-for-like sales were down 3.6 per cent in the last financial year, compared with 6.2 per cent the previous year. Moreover, a recent first-quarter trading update confirmed that this trend is continuing, with UK sales down just 0.9 per cent, compared with a 6.7 per cent decline in the same period last year.
A lot of this was helped by online sales, an area in which Mothercare is finally making some much-needed investment. A new website and mobile app are boosting revenue, while next-day click-and-collect was rolled out in May. Despite the disruption caused by upgrades, in the last financial year these 'direct in-home' sales grew 4 per cent to account for nearly a fifth of the group's £500m UK sales, while first-quarter sales this year rose an impressive 14.6 per cent.
| MOTHERCARE (MTC) | ||||
|---|---|---|---|---|
| ORD PRICE: | 441p | MARKET VALUE: | £391m | |
| TOUCH: | 440-441p | 12-MONTH HIGH: | 495p | LOW: 193p |
| FWD DIVIDEND YIELD: | nil | FWD PE RATIO: | 14 | |
| NET ASSET VALUE: | 44p* | NET DEBT: | 84% | |
| Year to 30 Mar | Turnover (£bn) | Pre-tax profit** (£m) | Earnings per share** (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 794 | 28.5 | 24.2 | 18.3 |
| 2012 | 813 | 1.60 | 1.80 | 2.0 |
| 2013 | 772 | 8.30 | 6.10 | nil |
| 2014*** | 797 | 21.0 | 18.0 | nil |
| 2015*** | 841 | 35.5 | 30.5 | nil |
| % change | +6 | +69 | +69 | - |
Normal market size: 2,000 Matched bargain trading Beta: 0.46 *Includes intangible assets of £46.5m, or 52p a share **Adjusted PBT and EPS figures ***Oriel estimates | ||||
On the product side, a number of important changes are luring shoppers back through the doors, too. Prices have been slashed across the 'Value Essentials' clothing range, putting Mothercare in direct competition with supermarkets, and the range has been extended, now accounting for 20 per cent of total clothing. Last year's autumn/winter range sold quickly, prompting reordering of product for the first time in several years - a real vote of confidence from consumers. And, in the competitive home and travel category, more own-branded goods are being added to the mix, which should help margins. These include the Innosense feeding range launched in January and Xpedior, a pram priced at a competitive £250. The target to cut the bloated store estate to 200 outlets is on track, with 69 closed in the last financial year and first quarter of this year, bringing the total footprint to 242.
Service still needs to improve, but according to analysts Oriel Securities, Mr Calver has fired roughly 60 underperforming store managers and satisfaction scores have improved to the mid-70s from 60s. More needs to be done, but with a bonus scheme in place, staff are responding quickly.
