High-street chain Mothercare (MTC) has issued a profit warning just six weeks after a dismal set of half-year results put the mum-and-baby chain £17m into the red. Moving into the third quarter, the group’s performance in the UK has been further harmed by poor footfall numbers and a squeeze in consumer spending – something that has affected both store and online sales.
A high level of discounting has also culminated in lower gross margins, although cash generation is said to be holding up. International sales have also started to “stabilise”, but remain challenging. All in all, this makes it likely that the group will just about break even during the year ending March 2018, which compares with prior estimates of around £11m in adjusted profit.
Brokerage Peel Hunt has trimmed forecasts accordingly, suspecting that a weak start to the quarter wasn’t helped by Mothercare’s disadvantaged market position during the Christmas shopping season. Analysts there argue that the group’s pricing on branded items isn’t always competitive, either – an issue that has “yet to be resolved”. Using the brokerage’s model, Mothercare is on track to log a UK loss of £17.9m this year.
Net debt has risen to around £50m, although this is well within limits. However, management is already starting to cut back on its capital expenditure plans to ensure that remains the case. This will have a knock-on effect of slowing the group’s store transformation programme. Ongoing store closures contributed to the 11 per cent drop in total UK sales (down 7.2 per cent on a like-for-like basis).
Internationally, the picture has yet to significantly improve, either. Sales overseas fell by 6.8 per cent in total (down 3 per cent in constant currencies) during the period, although improved weather in Russia and a stabilising of conditions in the Middle East are reasons for cheer.
