July 26, 2019 / 6:23 AM / a month ago

Mothercare sees no growth in annual profit as consumer confidence falters

FILE PHOTO: People walk past a Mothercare store in Altricham, Britain, May 16, 2018. REUTERS/Andrew Yates

(Reuters) - Struggling British baby products retailer Mothercare Plc (MTC.L) said on Friday its annual underlying pretax profit would not grow, as it grapples with an uncertain and volatile home market along with fragile consumer confidence.

Mothercare, which floated in 1972 and has been a mainstay of British shopping streets, has closed a third of its British stores over the past year through a company voluntary arrangement (CVA).

The company, which has been hit hard by intense competition from supermarket groups and online retailers in its main UK market, said total UK sales were 23.2% lower for the 15 weeks ended July 13, following an extensive store closure programme.

CVAs allow retailers to avoid insolvency by offloading unwanted stores and securing lower rents on others and reach a compromise with creditors. They have been adopted by other British retailers including fashion chain New Look.

Mothercare, whose UK business has been unprofitable for more than a decade, also said it had worked to create the “optimal structure” for its UK retail operations as an independent Mothercare UK franchise.

“The process of restructuring and rebuilding a sustainable business continues, and we have in place financing plans to support these actions as we aim to be bank-debt free by the end of the year,” Chief Executive Officer Mark Newton-Jones said.

Total group sales for the mother and baby products retailer fell 9.2%, while international sales were down 4.5% on a constant-currency basis, hit by declines in the Middle East.

The company also expects gross margin improvements in the UK to take longer to materialise than previously anticipated, as it spends on promotional activity.

“The UK retail market remains challenging and though the rate of decline in LFL sales has moderated, margin investment in promotional activity has been necessary to stimulate sales, both in our stores and online,” Newton-Jones added.

Reporting by Tanishaa Nadkar and Noor Zainab Hussain in Bengaluru; Editing by Shounak Dasgupta

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