Mothercare has revealed plans to stop selling clothing for older children in its domestic markets next year as the group moved to a loss in the first-half as its turnaround efforts and failure to take-off in the Middle East took its toll in the period.
For the 28 weeks to 7 October, adjusted group loss before tax was GBP0.7m, compared to pre-tax profit of GBP5.9m in the same quarter of last year. Shares in the company tumbled more than 16% this morning (23 November) in the wake of the results.
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UK gross margin was up 34 basis points in the first half, although sales of full price product declined to 60% from 65% last year as customers shifted more heavily toward promotional items.
Group sales meanwhile, slipped 2.4% to GBP339.5m from GBP347.7m last year. In Mothercare’s domestic market, revenues fell 1% to GBP229m from GBP231.2m a year ago, while UK like-for-like sales were up 2.5%.
The company has been working to improve its online proposition as part of its aim of becoming a “digitally led business”. As a result, online sales were up 5.3% and now represent 42% of total UK retail sales, compared to 40% this time last year. Mobile meanwhile, represents 82% of online traffic while 42% of total online sales are generated by iPads in stores.
Looking to clothing and footwear, Mothercare said it is advancing with its plans to reshape its ranges in a bid to focus on the “core markets” of maternity, newborn, baby and toddler up to pre-school. As a result, from autumn/winter 2018 the company will no longer sell clothing ranges in the UK for older children.
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By GlobalDataCEO Mark Newton-Jones added the group is on track with its transformation plans, but noted more needs to be done overseas.
“Our international markets remain challenging, primarily as a result of weak trading in the Middle East that is dragging down our overall performance overseas; there is no clear sight as to when things will bottom out in that region. We are working with our partners across the globe to help them improve trading by exporting our digital experience and our modern ‘club’ format into their territories.”
Meanwhile, Newton-Jones said the retailer was hit by a softening in the UK market with lower footfall and spend toward the end of the reporting period, and in subsequent weeks.
He added: “Not-withstanding this uncertain consumer backdrop, the Mothercare brand, whilst not immune, is in a stronger position with a much-improved product and service offer and a more robust business model.”
Sofie Willmott, senior retail analyst at GlobalData, notes: “The retailer’s Black Friday promotions, which have been running since Monday (20 November) in attempt to claw back sales after a difficult few weeks of trading, will challenge margin improvement, but as consumers rein in spend it is a necessary move to drive sales conversion during the crucial peak period.”
