Struggling retailer Mothercare PLC (LON:MTC) warned that a tough UK market would dent profits as it reported weaker first-quarter sales.
The maternity and baby goods chain said it expects full-year underlying profit before tax to be broadly flat on last year, adding that the UK market will continue to be “uncertain and volatile” with “fragile” consumer confidence in the medium-term.
Given the need for continued promotional activity to draw in customers, gross margin improvements in the UK will take longer than expected to materialise, the company said.
READ: Mothercare sees improving retail trends after cutting losses and debt
In the first quarter to July 13, total group sales fell 9.2%.
UK sales slumped 23.3% as the company reduced its store estate to 79 from 134 a year ago and held more promotions on clothing and toys to attract customers.
The closures were part of a company voluntary agreement – an insolvency process that allows troubled companies to shut stores and renegotiate rents – approved by creditors last year.
On a like-for-like basis, UK sales fell 3.2% over the period.
International sales dropped 2.1% at actual exchange rates or 4.5% at constant currencies.
Challenging retail market
“The UK retail market remains challenging and though the rate of decline in like-for-like sales has moderated, margin investment in promotional activity has been necessary to stimulate sales, both in our stores and online,” said chief executive Mark Newton-Jones.
“The impact of this has negated much of the margin benefits we had expected to materialise.
“Furthermore, we have observed a lower than expected transfer of sales following the CVA store closure programme which completed in early April 2019.”
Mothercare reportedly in talks to sell UK arm
The trading update comes a day after Sky News reported that Mothercare was in talks with third parties about a sale or franchising agreement for its UK store operations.
Earlier this year, Mothercare agreed to sell its toy brand The Early Learning Centre to rival chain The Entertainer. The company said it would use the £13.5mln proceeds from the sale to reduce its debt.