Mothercare upbeat but City not so sure

Published on 16/10/2008 22:36

MOTHERCARE has hailed a modest 0.5 per cent rise in sales as a "resilient" performance amid the current high street downturn.

The babycare retailer, which recently launched its Baby K clothes range, designed by singer Myleene Klass, said that although the growth had slowed since the 1 per cent of the previous quarter, Mothercare's UK arm achieved growth of 0.8 per cent over the first half of its financial year.

Total UK sales were ahead 7.8 per cent for the six months following the addition of the Early Learning Centre (ELC), which it acquired last year.

Shares in Mothercare closed down 8.6 per cent at 320p.

Chief executive Ben Gordon said the group had performed well around the world in the second quarter, with the UK business "resilient in a slow market". He said he was particularly encouraged by growth in the company's online business, where sales rose 47.8 per cent in the first half of the year.

International like-for-like sales were up 9 per cent, while the opening of 78 stores in the first half – including the first two stores in China – took its portfolio to 572 outlets in 49 countries. More than half of its sites are overseas.

Gordon added: "We are managing the business tightly and despite the issues in the wider economy we enter the second half benefiting from the strength of our two international brands and our positive cash position."

He said he was comfortable with market forecasts for the full-year results, which are due out on 20 November.

He said: "The consensus for annual pre-tax profit is closer to 36 million now but we feel comfortable with that even though the environment is a tough one."

Mothercare bought ELC for 85m and has since been working on a plan to optimise the company's property portfolio. Adding ELC ranges to Mothercare outlets has also enabled the parent company to optimise the use of Mothercare stores.

The jump in sales for the online operation comes after Mothercare pledged to improve the performance of the ELC website.

Mothercare has revived its fortunes in the past three years, following an overhaul of its UK high street operations.

The acquisition of ELC meant the group reported full-year sales in May of 676.8m, an increase of 35.8 per cent on a year earlier, with underlying profits 70.8 per cent higher at 38.6m.

But despite the relatively upbeat trading statement, broker RBS Equities rates Mothercare's shares "reduce".

It said in a note: "Whilst the UK performance is robust in the context of the sector more generally, the group is experiencing domestic slowdown."

It added: "With group profits second-half weighted and given sensitivity to domestic sales where trends are weakening, we do not share that confidence in Mothercare's earnings outlook, where we see risk on downside."