• Mothercare is entering into a CVA, or company voluntary arrangement, with plans to close 50 locations, reduce rents on a further 21 stores and cut hundreds of jobs?.
  • It is hoping to achieve cost savings of at least GBP10m per annum.
  • Mark Newton-Jones, who was ousted last month, has agreed to return as chief executive.
Mothercare found itself in “perilous” financial condition

Mothercare found itself in “perilous” financial condition

Mothercare is to close 50 stores and bring back former CEO Mark Newton-Jones under a new rescue plan aimed at securing the financial footing of the ailing mother, baby and children's goods retailer.

Around 800 jobs could be at risk with the closures, which form part of a company voluntary arrangement – a form of insolvency – the retailer is undertaking, through which it will seek cost savings of at least GBP10m (US$13.5m) per annum from rent reductions and store closures.

The refinancing is expected to provide Mothercare with funding of up to GBP113.5m to support the business. It plans to raise GBP28m through a new share issue in July, GBP67.5m from new debt facilities, GBP8m in loans from shareholders, and GBP10m from one of the company's trade partners.

Newton-Jones, who was ousted just last month, has agreed to return as chief executive officer alongside his replacement David Wood who will become group managing director. Clive Whiley, the company's interim executive chairman, said his return will provide Mothercare with a "first-class executive team to ensure implementation of the transformational tasks ahead of us."

The restructuring is the result of the "perilous" financial condition the retailer has found itself in, impacted primarily by a large number of legacy loss-making stores within its UK estate. In March, the company issued a profit warning for the full year.

Whiley says the retailer had found itself in an "unsustainable situation" and was "in clear need of an appropriate resolution."

"These comprehensive measures provide a renewed and stable financial structure for the business and will drive a step change in Mothercare's transformation. The potential for the Mothercare brand in the UK, benefiting from a restructured store estate, and internationally remains significant. However, there remains much to do and we must maintain a disciplined focus on cost control and cash generation throughout the business, but these measures provide a solid platform from which to reposition the group and begin to focus on growth, both in the UK and internationally."

Creditors are expected to vote on the CVA, which only relates to certain business entities within Mothercare, on 1 June with the stores expected to close within a year.

The CVA will trigger a Pension Protection Fund assessment. Mothercare says it will continue to pay into the scheme and has entered into a deficit recovery contributions deed to ensure contributions are protected.‎

Richard Lim, chief executive of Retail Economics, says 2018 has turned out to be "a year of distress" for the retail sector.

"The announcement to close such a significant number of stores highlights the unyielding shift towards online shopping and the overcapacity concerns faced by a significant proportion of the market. Focusing on prime locations with sustainable levels of footfall, pushing forward right-sizing initiatives and utilising excess space to sweat assets will be critical in forming business models that are fit-for-purpose in today's digital age."