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April 11, 2022

Covid, Russia weigh on Mothercare sales

Mothercare says its global business continues to feel the effect of the Covid pandemic and sanctions on Russia could impact results to March 2023 by US$7.8m (GBP6m).

By Hannah Abdulla

In a pre-close trading update to the stock exchange, Mothercare says global sales for the year ending 26 March 2022 were significantly impacted by varied experiences of Covid in franchisee markets, and it also predicts Russia sanctions will have an impact on future results. This update is based upon draft figures pending finalisation of the year end audit.

  • Unaudited net worldwide sales of GBP385m for the year significantly impacted by varied experiences of Covid in franchisee markets
  • Adjusted EBITDA of GBP11.5m to GBP12m for FY22, ahead of analysts’ expectations
  • Marginally reduced net debt of GBP10.3m at the year end.

In a November interim trading statement, Mothercare had indicated it had swung to a pretax profit for the year despite sales falling 48% year on year as it continues its transformation journey.

Impacting the results going forward is the suspension of the group’s franchise partner’s operations in Russia. On 9 March 2022 Mothercare announced that its franchise partner’s retail business in Russia (116 stores and online) had been suspended. GBP88m of its annual retail sales came from Russia and the territory directly contributed around GBP5.5m to adjusted EBITDA for the year. Mothercare expects this to impact its results for the financial year to March 2023 by GBP6m as previously guided. 

Mothercare chairman Clive Whiley commented:

“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.

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.

Finally I would like to thank, on behalf of the board, all of our colleagues, franchisees and product suppliers for their efforts in what has been another extraordinary year.”

2023 Outlook – key takeaways

  • It is upgrading its clothing ranges to offer more choice at a variety of price points and with improved design, fashionability, quality and value which sets it apart from its international competitors’ offerings.
  • Return to pre-Covid trading could still take a while and continues to impact Mothercare franchise partners’ profitability and the levels of investment they have been able to make in their businesses. Mothercare is likely, in some cases, to directly contribute to achieve the recovery to benefit the business overall.
  • The ERP project is progressing well and the product lifecycle management system is in its final phase of testing and due to go live next month with full savings to be seen at the end of FY 2024.
  • Medium term guidance for steady state operation in more normal circumstances of continuing franchise operations is that they are capable of exceeding GBP10m operating profit on the most prudent basis of excluding any contribution from the Russian business. 
  • Mothercare is focused on accelerating growth in new and existing markets.

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