• Mothercare said its overall group performance in the 12 weeks to 30 December was "below expectations".
  • CEO Mark Newton-Jones has warned the retailer now expects adjusted group profit for the year to be in the range of GBP1-5m (US$1.35-$6.77m), having previously predicted profits of GBP10m.
  • Total group sales fell 2.4% in the period, while UK like-for-like sales slipped 7.2%.
Shares in the company were down 25.16% this morning

Shares in the company were down 25.16% this morning

Shares in Mothercare tumbled more than 25% this morning as the UK mother, baby and children's goods retailer issued a profit warning on the back of a sales slump over the key Christmas trading period.

In a trading update today (8 January), Mothercare said for the 12 weeks to 30 December, total group sales fell 2.4%, while UK like-for-like sales slipped 7.2%, impacted by lower footfall and spend, both in stores and online.

The company has been working to improve its online proposition in a bid to become a "digitally led business" but said domestic online sales declined by 6.9% in the period, representing 42% of total UK sales.

Mothercare said lower gross margins were due to higher discounting but noted positive sell-through of stock and cash generation.

Meanwhile, international retail sales dropped 6.8% in actual currency, and 3% in constant currency, but the company said key markets showed signs of improvement towards the end of the period.

International online sales were up 8.5% in constant currency and 7.4% in actual currency.

The retailer said overall group performance was "below expectations" with CEO Mark Newton-Jones warning it now expects adjusted group profit for the year to be in the range of GBP1-5m (US$1.35-$6.77m), having previously predicted profits of GBP10m.

He adds in its UK business, the company took a conscious decision to remain at full price to protect its brand positioning prior to Christmas and to then discount more heavily in the end of season sale. "We have subsequently seen good progress with strong sell through rates on autumn/winter clearance lines albeit these carry lower margins and will lead to a further reduction in full year margin as a result," he said.

Meanwhile, in-line with previous announcements and as part of Mothercare's transformation strategy, Newton-Jones said the retailer has taken decisive action to reduce its central cost base, with the planned financial benefits expected to materialise in the next financial year.

He added: "We continue to adopt a disciplined approach to cash management with a particular focus on controlling stock levels, together with stringent controls over capital expenditure.

"Taking this approach into account we expect net debt at year-end of about GBP50m and at this level we have sufficient liquidity and covenant headroom within our existing facilities.

"Whilst the performance of the business has been challenging in the last few months, we remain singularly focussed on transforming Mothercare to be the leading global retailer for parents and young children."

Zoe Mills, retail analyst at GlobalData, notes weak sell through before Christmas, despite an extended Black Friday period, has shown that the retailer failed to hit the mark with its planning for the quarter.

She adds: "The parent and child specialist is currently in the second phase of its transformation plan as it shifts to become a more digitally-led retailer. While this strategy is wise and reflects the shift in consumer shopping habits, with online now representing 42% of sales it has left the retailer highly exposed to intensifying online competition, particularly during the Christmas trading period when online shopper penetration and consumer sensitivity to price and promotion rises. So despite the substantial investment in its online platform, it must focus on improving the product and pricing strategy it employs to ensure online success."

Meanwhile, Mills says that with further store closures on the cards, total UK sales will continue to decline. "While the majority of its stores are now in the new club format, improving the store experience further is essential to return like-for-like sales to growth, with at least a 2% rise necessary for Q4 to avoid a 2017/18 full-year decline. Moreover, it must utilise its stores to support the online channel and to differentiate itself from online competitors Amazon, PreciousLittleOne and Tesco Direct."