Mothercare still a work in progress, on track, but backdrop is tough
today Nov 23, 2017
The consumer backdrop may be challenging but Mothercare said its transformation is progressing as it sharpens its focus on core product categories and makes the most of omnichannel opportunities. Not that it’s in the clear just yet. The tough economic backdrop both in the UK and abroad, plus the need to invest in the transformation plan while also cutting costs, is weighing on current results.
The leading UK mother-and-baby products specialist said Thursday that comparable sales turned positive in the 28 weeks to October 7 but that it was lossmaking during the period.
And worse, it also said that "towards the end of the reporting period, and in subsequent weeks, we have seen a softening in the UK market with lower footfall and spend which is consistent with recent industry reports.”
The company made a narrow adjusted pre-tax loss of £0.7 million, down from a profit of £5.9 million a year ago for the first half. Its statutory group pre-tax loss was £16.8 million, much worse than the £0.8 million of a year ago. But it was in line with its guidance. Meanwhile, its UK-specific adjusted pre-tax loss widened to £9.6 million from £8.8 million.
Total group sales dropped 2.4% to £339.5 million.Total UK sales dipped 1% to £229 million on the back of store closures and international retail sales fell 1.7% after having risen 7.1% this time last year. They fell 7.7% on a currency-neutral basis.
But comp sales in its biggest market, the UK, rose 2.5% after dipping slightly a year ago, and web sales were up 5.3% with margins up 34bps.
Clearly its UK performance is improving but is it at risk from the softening of conditions there? It thinks not. The company said Thursday that “the Mothercare brand, while not immune, is in a stronger position with a much-improved product and service offer and a more robust business model.”
That confidence comes from the work it has done on its stores and the fact that 42% of its total sales are now made online, It has been spending heavily on its store estate with 97 locations, or 75% of the total, now converted to its new ‘club’ format that aims to make the stores an experience-based destination. And its store closure programme has continued with 10 underperforming sites shuttered and only one new location opened.
TRANSFORMATION ON TRACK
CEO Mark Newton-Jones said the company is “on track with our transformation plans for our business. Across the business, we continue to invest and make progress, developing the Mothercare brand into a digitally led, global specialist.”
He added that international markets remain “challenging, primarily as a result of weak trading in the Middle East that is dragging down our overall performance overseas,” and “there is no clear sight as to when things will bottom out in that region.”
But the company is working with its partners globally “to help them improve trading by exporting our digital experience and our modern 'club' format into their territories.” And it has expanded its digital presence in a further three countries, India, Pakistan and United Arab Emirates
It’s also working on improving its product offer and this appears to have been having a positive effect. In Clothing and Footwear, its celebrity 'best' brands, My K, Smile and Little Bird, continue to be popular. And the modern monochrome collection, designed by Myleene Klass, “is a big hit”, while “newborn and girls are top sellers in Julien Macdonald's Smile collection”.
It said that the Little Bird line by Jools Oliver “is an enduring favourite through the seasons” and it extended Little Bird into bedding and maternity in the summer, while this AW season saw the return of favourite Little Bird pieces from the last five years, as voted for by its customers.
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