Mothercare PLC

Mothercare sees improving retail trends after cutting losses and debt

“In the early stages of this financial year, we are seeing some improving UK trends as we continue to rebuild to be the specialist retailer for parents and young children”, the retailer said

In the past year, Mothercare closed 30% of its UK stores, sold the Early Learning Centre and offloaded its head office building

Mothercare PLC (LON:MTC) cut its losses and slashed debt last year after a major restructuring, and said it was seeing “some improving UK trends” in recent weeks.

Publishing its results for the 53 weeks to 30 March, a day later than planned as it said they were so complicated, the parent-focused retailer reported a 29% reduction in losses before tax from continuing operations to £66.6mln, even though revenues shrank by 11.5% to £513.8mln.

READ: Mothercare needs more time to work on results

Mothercare saw its UK like-for-like (LFL) sales fall by 8.9%, compared to a 0.6% increase in teh previous year, with UK sales down 11.8% and its losses cut by 10%. The group said its international shops showed signs of recovery, with sales down 0.3% in constant currency compared to a 5.7% fell the year before, while adjusted profit before tax and forex revaluations were almost flat.

In the past year, Mothercare closed 30% of its UK store space, completed a £117.5mln refinancing, sold the Early Learning Centre for £11.5mln and offloaded its head office for £14.5mln, helping chop net debt back to £6.9mln from £44.1mln a year earlier.

Chief executive Mark Newton-Jones, who was sacked last year but brought back after a change of mind and after the group changed its chairman, commented: “We have achieved a huge amount this year, refinancing, restructuring and reorganising Mothercare to ensure a sustainable future for the business. The majority of that work is now done.”

READ: Mothercare to close half of its stores and bring back former boss as part of turnaround plan

With a slimmed down estate of 79 UK shops, slimlined organisational structure and a new product sourcing deal to cut the cost base by £25mln, Newton-Jones said the next phase of the transformation plan is to "develop Mothercare as a global brand", while improving the UK's online proposition with enhanced credit options and more exclusive products.

“In the early stages of this financial year, we are seeing some improving UK trends as we continue to rebuild to be the specialist retailer for parents and young children.”

The CEO also noted that the board was “exploring ways to supplement our working capital needs” while minimising equity dilution, and said it remains on target to meet consensus forecasts for the current financial year.

Broker Shore Capital hailed the efforts at transformation that now gave "the room to focus upon operations" and said with lower leverage plus the better than expected cost reduction, any improvement in trading should see a strong improvement in cash flow and earnings.

"Whilst we cannot discount the poor continuing UK trading, particularly now as it is set against highly favourable comparatives, progress on this front is likely to dictate market sentiment towards the group’s shares. We have hope but at the moment such an emotion continues to be based on fumes," the analysts said in a note to clients.

Mothercare shares shot up to a nine-month high in early trading on Friday but by mid morning had slipped back from that peak to 22.7p, a rise of 11%.

 -- Adds analyst comment -- 

Quick facts: Mothercare PLC

Price: £0.14

Market: LSE
Market Cap: £47.94 m

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