Mothercare CEO Mark Newton-Jones has hailed “significant progress” in the UK-based mother, baby and children’s goods retailer’s final quarter, yet one analyst says more work is still to be done as both UK total and like-for-like continue to fall.
In a fourth-quarter trading update today (4 April), the retailer reported an 8.8% fall in UK like-for-like sales but noted the drop represents an improvement on the prior two quarters.
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For the period ended 30 March, Mothercare said international sales, tumbled 4.9% in constant currency, and 4.5% in actual currency, with retail sales in core markets down 5.7% in constant currency driven primarily by economic and trading challenges in the Middle East. Growth in the quarter was observed in the core markets of Russia, India, and Indonesia, however.
“We have continued to make significant progress in our final quarter as we continue our strategic transformation to deliver a sustainable and profitable future for Mothercare,” Newton-Jones said.
Efforts began earlier last year to put the retailer back on a “sound financial footing,” including several hundred job cuts, store closures and entry into a company voluntary arrangement. In October, Mothercare confirmed to just-style 150 jobs were at risk as part of cost-cutting measures. It also repositioned its UK business to operate with the discipline of a franchise with the objective to return the business to profitability.
Last month the retailer announced the sale of the Early Learning Centre to The Entertainer for GBP13.5m (US$17.7m), in a deal it said enables a further reduction in bank debt and a focus on its core strategic priorities.
In today’ statement, Newtown-Jones said the retailer’s UK store closure programme has been completed ahead of schedule and it now has 80 stores in operation, down from 137 stores a year ago.
He added the disruption it has seen from both the organisational changes and the UK store closures is “now largely behind us”, but warned the company expects a continued impact on its business given the volume of clearance stock it has sold in recent months.
“Against this background, we remain on track to deliver on our full-year expectations, “he said.
“Looking ahead, we expect market conditions in the UK and in some international markets to remain challenging. We enter the new financial year in a more robust position as a restructured business fit for the future and with reduced levels of debt. We have a significantly smaller UK store estate and our International operations remain cash generative. We look forward to the new financial year and to delivering the next phase of our strategic transformation plan.”
Amy Higginbotham, retail analyst at GlobalData, notes although Mothercare has emphasised progress with regards to its strategic transformation plan, the figures suggest a lot more work is still to be done.
“UK total and like-for-like sales continue to fall, dropping 14.5% and 8.8% respectively, and on negative comparatives. Though a drop in total sales is expected when closing stores, the continued decline in like-for-like sales indicates that the retailer is still burdened with underperforming stores, despite the completion of its store closure programme,” she says. “It also shows that Mothercare is failing to get shoppers at closing stores to make the effort to go to their next closest location.”
Meanwhile, unable to rely on new space or online sales to offset falling total and like-for-like sales in the UK, Mothercare is turning to international markets in an effort support overall growth, Higginbotham says, having increased its space abroad by 5.5% during the quarter.
“But this is problematic, as international sales growth remains negative, seeing growth in only a few markets such as Russia, India and Indonesia,” she explains.
“CEO Mark Newton-Jones will have a lot of work to do in FY2019/2020 to reverse Mothercare’s downward trajectory,” Higginbotham concludes. “He hopes that the sale of Early Learning Centre to The Entertainer earlier this month will help the business achieve its aim to be bank debt free by the end of 2019, and enable the retailer to push ahead with the next phase of its strategic transformation plan, the exact details of which are unclear. The retailer should continue to focus on optimising its store estate and driving footfall to combat falling like-for-like sales, and should leverage its specialist credentials to draw consumers away from the likes of Amazon. Investment in its digital platform is also essential as spend will continue to shift online.”
