Leading UK retailer of toddler and kids' clothing, Mothercare, said on Thursday it fell £1 million into the red last year compared to a £4.7m profit in 2000 as warehouse problems took its toll on earnings.

The company said sales climbed 1.2 per cent to £375m and its pre-tax profits fell to £4.2m from £10.2 as it was saved by its overseas unit which made £4m. But it warned that underlying sales have slipped 2.1 per cent in the first two months of the current fiscal year.

Mothercare added that total sales rose 1.9 per cent to £425m but distribution problems had left its stores short of key merchandise and delayed by 12 months its three-year recovery programme.

Chairman Chris Martin said: "This has been a year of two distinct halves, with improved business performance from our recovery programme seen in the first half of 2001, followed by the adverse impact from implementing the move to the new warehouse in the second half.

"We are now getting back on track with our blueprint for revitalising the brand and delivering a consistent offer to customers. Our priorities remain to roll-out our successful new store formats to improve availability and to provide specialist service, at the same time as driving down distribution costs."