Mothercare PLC (LSE:MTC) shares dropped more than 12% lower in Thursday morning’s trade after the parent and baby retailer warned it may require waivers for future debt covenant tests.
It comes as the retailer continues to be impacted by higher interest rates and a protracted recovery back towards pre-pandemic sales levels.
Talks are taking place with lenders over potential refinancing and at the same time management is looking at alternative financing options including equity-linked funding, it said.
In a trading update, meanwhile, Mothercare noted full-year unaudited net worldwide retail sales amounting to £322mln by franchise partners which it described as being up 8% in continuing markets (it has ceased operations in Russia).
Earnings (adjusted EBITDA) are anticipated between £6.5mln and £7mln for the financial year to 25 March 2023, whilst net debt stood at £12.3mln at the year end.
“Once again our results demonstrate the resilience we have introduced to the business over recent years, where we continue to generate both profit and cash,” said chair Clive Whiley.
“Although our immediate priority remains to support our franchise partners as they emerge from a period of suppressed demand, ultimately for the benefit of our own business, we have also redoubled our efforts to restore critical mass.
“Accordingly we are engaged in discussions to drive the Mothercare brand globally by widening the bandwidth of our product offering, alongside penetration into new territories via a variety of routes to market.”
In London, Mothercare shares were down 1.1p or 12.5%, changing hands at 7.7p each, valuing the retailer at just over £40mln.