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Mothercare shares plunge 30% on Christmas trading profit warning Mothercare shares plunge 30% on Christmas trading profit warning
(about 7 hours later)
Mothercare shares plunged on Wednesday after it warned that poor pre-Christmas trading would cause it to miss annual profit forecasts. Mothercare shares plunged by 30% on Wednesday after the mums and baby store admitted Christmas trading had been hit by heavy discounting and poor toy sales.
The mother and baby retailer's shares fell more than 30% to 297p after it revealed weak trading across its business. Mothercare was the biggest faller of all companies listed on the London Stock Exchange after the retailer revealed weak trading both at home and abroad.
Numis, one of Mothercare's house brokers, more than halved its estimate for annual pre-tax profit to £8m from an earlier forecast of £17m and put its "add" recommendation under review. After the trading figures, Numis, one of Mothercare's house brokers, more than halved its expectations for the retailer's annual pre-tax profit to £8m from an earlier forecast of £17m.
UK sales in stores open a year or more fell 4% in the 12 weeks to 4 January and total UK sales fell 9.9%. The group's international business was also hit by weakening currencies and economic conditions in Russia, Indonesia and India – three of its five biggest markets. Total group sales were down 6.1%. Sales in UK stores open a year or more fell 4% in the 12 weeks to 4 January and total UK sales fell 9.9% the company revealed, saying it had been forced to cut prices amid higher levels of high street discounting than the previous Christmas, on both toys and clothing.
Simon Calver, Mothercare's chief executive, said: "In the UK, our stores suffered similar Christmas trading pressures to those reported elsewhere. Customer service scores continue to improve year on year but weaker footfall and higher promotional activity led to lower sales and margins. The group's international business was also hit by weakening currencies and tricky economic conditions in Russia, Indonesia and India – three of its five biggest markets. Total group sales were down 6.1%.
"International was impacted by currency deflation reducing the reported rate of growth and by heightened economic volatility. As a result of lower UK sales and margin and the international currency impact, full-year profits are likely to be below the current range of market expectations." Simon Calver, Mothercare's chief executive, said: "In the UK, our stores suffered similar Christmas trading pressures to those reported elsewhere. Customer service scores continue to improve year on year but weaker footfall and higher promotional activity led to lower sales and margins."
Calver has been trying to revive Mothercare by closing unprofitable stores, revamping remaining branches, improving customer service and increasing international sales. But the chain has fallen victim to weak household spending, which has hit retail sales despite signs of economic recovery and improved consumer confidence. "A lot of value was coming out of the market, we needed to discount to be in there," he said.
Calver said the company's Early Learning Centre chain was particularly hard hit as the whole market was forced into earlier than usual discounting amid competition from high-tech alternatives such as tablet computers.
The chain's online sales, meanwhile, took a knock from a decision to halt free delivery on sales worth less than £50, a service that proved unprofitable the year before.
While online sales at Mothercare.com rose 15% - 20% for the quarter, total direct sales slid 1% because of the poor performance from its sister brand.
Calver admitted Mothercare's problems were not only the result of external factors. "Clearly we didn't do everything right," he said. "We are in the middle of a turnaround but we would like to be further ahead with our ranges, pricing and product in stores." He said the company could also improve its online service.
Calver has been trying to revive Mothercare by closing unprofitable stores, revamping the remaining branches, improving customer service and increasing international sales. The latest poor figures come despite the closure of about 70 poorly performing stores since Calver's revival plan began. Meanwhile, the retailer faces increasing competition on toys and clothing from growing specialists such as Kiddicare, which is now owned by supermarket Morrisons, as well as John Lewis, Amazon, Argos and the supermarkets.
"The UK baby clothing and equipment market remains very competitive with few retailers in this category making any positive retail margins, especially as high street clothing chains, internet offers and supermarkets continue to grow space and share," said Mike Dennis, an analyst at City broker Cantor.
Mothercare's experience reflected the story at Debenhams, the department store group which also blamed heavy promotional activity and cautious shoppers for its profit warning earlier this month. In contrast private clothing retailer New Look is understood to have seen a 1.5% rise in same-store sales in the seven weeks to the end of the year.
The retailer introduced price cuts of up to 50% on key seasonal product categories including knitwear and outerwear in the weeks before Christmas but discounted less overall than in the same period a year before.
Today (Thursday) market bellwether Marks & Spencer will reveal how it fared over Christmas in the face of an overall 9.9% slump in clothing prices in December, according to figures from the British Retail Consortium. While M&S is thought likely to have seen strong food sales, expectations for clothing are low after the store began offering 30% off knitwear, one of its Christmas best sellers, a week before Christmas and expanded that offer to all clothing in the weekend before December 25.
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