JP Morgan has more than halved its price target for Mothercare plc (LON:MTC) after the retailer’s profit warning on Monday.
The new price target is 40p, down from 82p previously, and the rating has moved to ‘underweight’ from ‘neutral’, reflecting increased doubts about the strength of the brand.
READ: Toys go out of the pram at Mothercare after profit warning
The US bank said that while it knew trading conditions for many retailers have been tough, Mothercare’s like-for-like (LFL) year-on-year sales decline of 7.2% in the 12 weeks to December 30 and the 6.9% fall in online sales were well below the 4% decline in the retail fashion sector and the 21% online sales growth reported by the industry.
The JP Morgan team said this performance raised doubts over whether the brand is strong enough to drive footfall or competitive enough to win online.
“Whilst overseas sales are giving some signs of relief, we see losses in the UK mounting and expect more radical restructuring measures may be needed to improve profitability,” JP Morgan (JPM) said.
Too early to call a turn in fortunes
The bank said it is “still too early to call the turn” in the fortunes of the international division of Mothercare.
JPM has cut its profit before tax forecast for the current fiscal year (to end-March) to £1.1mln from £14.3mln previously, while the forecast for next year has been more than halved to £9.2mln from £19.6mln.
“If LFL performance doesn’t improve we believe capex may need to be reduced,” JPM warned.
Shares in Mothercare were up about 2% on early Tuesday after Monday’s shake-out.