November 22, 2018 / 7:59 AM / a year ago

UK's Mothercare shrinks to survive as losses widen

LONDON (Reuters) - Struggling British baby products retailer Mothercare (MTC.L) said it would trade from fewer than 80 UK stores by April next year as it shrinks its portfolio as part of a plan to stay in business.

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

Shares in the firm, which traded from nearly 400 UK stores a decade ago, fell as much as 9.4 percent on Thursday after it reported a wider first-half loss and warned trading would remain volatile. The stock has lost over three-quarters of its value over the last year.

The first-half loss reflected an 11.1 percent slump in underlying sales in Mothercare’s home market, which it blamed on wider market uncertainty and “negative press coverage” of its financial restructuring.

The group’s sales and profit have been hammered by intense competition from supermarket groups and online retailers in its main British market as well as by rising costs. Mothercare’s UK business has not made a profit for over a decade.

In July it detailed a survival plan to refinance, close over a third of its UK stores and slash costs.

It said 20 stores had closed so far and about 40 more would shut by April, reducing its estate to fewer than 80. The remaining estate will include 32 stores with leases which expire within three years.

Chief Executive Mark Newton-Jones said he was targeting the UK business to be at least at break-even within two years.

“We will take the necessary steps to make the UK viable. If that means exercising some more lease expiries as they come up to take the rental burden down, then we’ll do so,” he told Reuters.

Newton-Jones said that while the UK remains “very challenging”, Mothercare’s international business, which generates two-thirds of group turnover, was showing signs of recovery, with growth in the key markets of Russia, China and Indonesia.

And he was confident his strategy would ultimately reinvigorate Mothercare as it remained “the go-to mum and baby business”, with market-leading shares in key product categories, such as prams, push chairs and baby clothes.

Mothercare made an adjusted pretax loss of 6.2 million pounds ($7.93 million) in the 28 weeks to Oct. 6, versus a loss of 2.6 million pounds in the same period of last year.

The CEO said it was on track to meet analysts’ average forecast of a pretax loss of about 14.6 million pounds for the full 2018-19 year.

The stock was down 8 percent at 16.4 pence at 1124 GMT, valuing the firm’s equity at just 55 million pounds.

Reporting by James Davey; Editing by Sarah Young and Jan Harvey

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