Mothercare PLC (LSE:MTC), the specialist brand for parents and young children, said underlying earnings (EBITDA) for the financial year just ended will be ahead of market expectations.
The retailer predicted EBITDA for the year to 26 March 2022 will be in the range of £11.5mln-£12mln, with the company enjoying some one-off benefits worth roughly £1.5mln.
Unaudited net worldwide franchisee retail sales of £385 million were up 7% year-on-year but were still significantly affected by COVID-19.
Retail sales remain below the levels the company would otherwise expect and are around 25% down on the total retail sales for similar territories in the year before the pandemic.
Online retail sales represented 10% of total retail sales, slightly down on the 12% for the previous financial year, reflecting lower levels of COVID-19 restrictions on store openings, but still above the levels achieved in the period before the pandemic.
The company, which has been seeking to reclaim former glories for several years now, said it approaches the current financial year with a degree of cautious confidence, although it noted that it has excluded Russia from its forecasts given the uncertainty around when stores may reopen. As previously indicated, the company expects the suspension of its business in Russia will hit the bottom line by around £6mln.
“Our updated medium-term guidance for the steady-state operation in more normal circumstances of our continuing franchise operations is that they are capable of exceeding £10 million operating profit on the most prudent basis of excluding any contribution from the Russian business. With encouraging results from our recent efforts on product design we remain focused on accelerating our growth in both existing and new markets,” the company said.
At the financial year-end Mothercare had total cash of £9.2 million (March 2021: £6.9 million), reflecting ongoing tight control of cash, against the £19.5 million of the group’s existing loan facility, which remained fully drawn across the year.
The pension scheme deficit, which stood at £124.6mln back in March 2020, had been whittled down to £66mln by February of this year; however, since the company’s ability to generate cash has been affected by the suspension of its Russian business, the company is seeking the permission of the scheme’s trustees to revise the agreed repayment schedule.
“As expected, last year was one of further progress for Mothercare, generating free cash flow from operations as a focused, asset-light global franchising business. Whilst we must now deal with the impacts of the suspension of our franchise partner’s operations in Russia, we retain the resilience to deal with this additional challenge satisfactorily,” said Clive Whiley, the chairman of Mothercare.
“We continue to drive initiatives designed to maintain momentum in improving profitability particularly when we return to more normal pre-pandemic levels of business. The near halving of the pension deficit also offers the potential for material reductions in our recovery plan payments. This is a good backdrop against which to revisit our current financing arrangements and we are exploring all available alternative funding options to further improve our financial flexibility,” he added.
Shares in Mothercare were unchanged in early deals.