Struggling retailer Mothercare PLC (LON:MTC) plans to sell its baby toy chain the Early Learning Centre (ELC) to the Entertainer Group for £13.5mln in a bid to cut debt.
The mother and baby goods specialist said the disposal would be another step towards being free of debt following the sale and leaseback of its UK head office in December for £14.5mln.
READ: Mothercare leaves profit guidance unchanged as international sales show improved trend, UK trading challenging
The group’s sales have been hit by tough competition from supermarkets and online retailers in the UK as well as subdued consumer spending and higher costs.
To offset the impact of sluggish sales, the company has been shutting a raft of stores to save money. It would have closed 57 stores in the UK by the end of this month.
The store closures were agreed with creditors and landlords as part of a so-called company voluntary arrangement last year to keep it out of insolvency.
The group also raised £30mln from shareholders in a rights issue last year.
Mothercare says it does not have the necessary resources to develop ELC
Mothercare, which paid £85mln for ELC in 2017, said it did not have the “necessary capital, resources or scale” to invest in the business and develop own-brand products needed to maximise returns.
The Entertainer will take over ELC, which has 80 UK concessions within Mothercare stores and 400 stores internationally, along with its portfolio of brands, including Happyland.
Mothercare will keep about £6mln of stock in the business to sell down.
The two companies have also agreed an "arm's length" concessions deal that will see the Entertainer supply toys to Mothercare stores and online.
Mothercare says turnaround plan on track
Mothercare chief executive, Mark Newton-Jones, said: “This disposal of Early Learning Centre provides a further step towards eliminating our bank debt, and our new concession arrangements with The Entertainer will bring our customers an even stronger Toys offer, both in stores and online.
“We look forward to working with the team at The Entertainer in the years to come.”
Newton-Jones said the company had made “significant progress” with its turnaround plan in recent months.
The company plans to be debt free by the end of this year.
Shares rose 7% to 18p in late morning trading.