Mothercare is taking steps to return the business to profitable growth

Mothercare is taking steps to return the business to profitable growth

Struggling UK maternity and babywear retailer Mothercare is offloading its Early Learning Centre business in a bid to focus on its core offering and return to profitable growth.

The company is selling the business and certain assets of the Early Learning Centre in a deal with toy retailer The Entertainer worth GBP13.5m (US$17.7m).

Mothercare said it did not have "the necessary capital, resources or scale in this category to continue to invest and develop the own-brand ELC toys needed to maximise returns from this specialist brand," adding that the net proceeds from the sale would be used to reduce its bank debt.

Efforts began early last year to try to put the retailer back on a "sound financial footing," including several hundred job cuts, store closures and entry into a company voluntary arrangement. Most recently it confirmed to just-style that 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.

In January, Mothercare reported a fall in third-quarter sales by 11.4%, attributing this to lower levels of discounting and challenging trading conditions. 

Today (13 March) the retailer said its store closure programme is ahead of schedule, and will leave it with a total of 80 stores, down from 137 last May. It added its product outsourcing initiative is also underway and will begin to yield margin benefits from autumn/winter 2019. Overall, the company is on track to deliver cost savings of at least GBP19m per annum in aggregate.

"We have made significant progress in recent months as we continue our strategic transformation to deliver a sustainable and profitable future for Mothercare," said CEO Mark Newton-Jones.

"This disposal of Early Learning Centre provides a further step towards eliminating our bank debt, and our new concession arrangements with The Entertainer will bring our customers an even stronger toys offer, both in stores and online. We look forward to working with the team at The Entertainer in the years to come."

Mothercare said it would update further in its full-year results in May.

Clive Black, research analyst at Shore Capital, said the announcement was "welcome" and that the GBP13.5m sale of ELC to The Entertainer was "attractive." He added that while Mothercare is "not out of the woods" in terms of its major change programme, "there is light emerging through the trees."