Throughout the times when Mothercare PLC’s (LON:MTC) UK estate was struggling, it could usually rely on its international division … until now.
Shares in the baby and toddler’s products retailer fell out of the cot with a bump this morning as the company fell into the red at the half-year state, posting an adjusted loss before tax of £700,000 and a statutory loss before tax of £16.8mln for the six months to 7 October.
In the same period of last year the retailer had posted an adjusted profit of £5.9mln.
International performance "remains challenging"
The group’s revenue eased to £339.5mln from £347.7mln the year before, and the picture on the like-for-like (LFL) sales front was mixed; UK LFL sales were up 2.5% year-on-year with online sales up 5.3% and margins up by a third of a percentage point, but international LFL sales were down 8.0%.
The company said international performance “remains challenging”, particularly in the Middle East.
Worse still, although it looks like drastic action to get the UK operations back on track have had some success, the retailer admitted that towards the end of the reporting period and in the weeks since, the UK market had softened.
"We are on track with our transformation plans for our business,” declared Mark Newton-Jones, chief executive officer of Mothercare.
“Across the business, we continue to invest and make progress, developing the Mothercare brand into a digitally led, global specialist,” he added.
"Our International markets remain challenging, primarily as a result of weak trading in the Middle East that is dragging down our overall performance overseas; there is no clear sight as to when things will bottom out in that region. We are working with our partners across the globe to help them improve trading by exporting our digital experience and our modern 'club' format into their territories. We have expanded our digital presence in a further three countries: India, Pakistan and United Arab Emirates,” the Mothercare boss said.
Shareholders threw their shares out of the pram, resulting in the stock plunging to 66p from last night’s close of 83.5p, before recovering to 71.18p, down 15%.
Veteran retail analyst Nick Bubb said “City analysts will no doubt be getting their red pens out as they re-jig their P&L models.”
Actions taken so far well thought through - Shore Capital
The retail team at Shore Capital is in the process of initiating coverage on the stock and was prepared to cut company boss Mark Newton-Jones and his team some slack.
“The business is in the midst of a material change programme revolving around the enhancement of its range, the rationalisation and improvement of its UK estate, the development of its digital platform and the seeing through of a capital-light internationalisation programme. In these respects Mark Newton-Jones (CEO) and his team have engaged in much heavy lifting to good effect to our minds; as manifested in key elements of the H1 performance,” it said.
“Whilst this is so, the market is likely to focus today (23rd November 2017) upon the group's outlook statement, where a particularly cautious tone is set,” the broker continued.
“Recent market conditions in UK retail have been mixed to say the least and it would appear that Mothercare is in the camp facing greater trading headwinds than not. As such the group's trading performance in the UK looks to have been tougher in H2 to date, albeit we can see no like-for-like (LFL) figures, which combined with pressures in a number of key international markets, especially the Middle East, leads to a bit of a potential perfect storm for the group,” Shore said.
The broker admitted the short-term pressures are “undoubtedly unhelpful to the investment case just now” but believes that the actions taken thus far to right the ship have been well thought through.