Shares in Mothercare PLC (LON:MTC) collapsed after the struggling retailer announced plans to put its 79 UK stores under administration, saying it is “unable to satisfy the ongoing cash needs” of its loss-making shops.
The parent-focused retailer, which generates more than £500mln of annual revenues from its 1,000-plus international stores, said the UK outlets are “not capable of returning to a level of structural profitability and returns that are sustainable” for the company, or even attractive enough for a franchising deal with a third party.
READ: Mothercare expects flat profit after quarterly sales slump amid tough UK retail market
UK subsidiaries Mothercare UK and Mothercare Business will go into administration, leaving 500 full-time staff and 2,000 part-time workers with an uncertain future, with all stores to continue trading for now.
May's annual results, which were so complicated they needed an extra day to prepare, showed the international division’s £28.3mln profits were completely wiped out by a £36.3mln UK loss.
The calling in of the administrators follows a tough 18 months in which 58 shops have been closed, following a root and branch review in May 2018.
AJ Bell’s investment director Russ Mould said of the news that “on paper Mothercare’s business model should have been a successful one”, since the still growing population means its target market isn't disappear anytime soon.
Mould explained that Mothercare’s flagging fortunes might owe to the company not investing enough in its online operations, so it could compete against Amazon and other retailers, whose home-deliveries provide a more convenient option for expectant mothers and parents with new-borns.
Shares lost over a quarter of their value down 27% at 8.28p in Monday morning trading.
--Edited to add AJ Bell comment