‘Ruthless’ plan for turnaround at troubled retail chain Mothercare

By DOMINIC JEFF
Published on 25/05/2012 03:31

MOTHERCARE’S new chief executive vowed to be “ruthless” in tackling the chain’s costs yesterday as a dismal UK performance dragged the retailer to a £103 million loss.

Simon Calver, who joined the company at the end of April, is planning to cut the number of UK stores from 311 to 200 as well as slimming down the warehousing operation and cutting 16 per cent of head office staff.

He said the plan to bring the UK business back to “acceptable levels of profitability” would take three years.

“We need to invest in e-commerce, be ruthless with our non-store cost base and use our scale and growth worldwide to drive sourcing economies and pass these savings on to the customers to improve our value for money around the world,” he said.

The firm is investing in revamped websites selling its Early Learning Centre and Mothercare brands around the world.

Calver’s claims found favour with investors as Mothercare’s shares soared despite the eyewatering loss, which was due to a one-off accounting charge that included a write down of “goodwill” and provision for the cost of restructuring the business. It compares to an £8.8m profit after exceptionals the year before.

On an underlying basis, the group reported a profit before tax of £1.6m in the 53 weeks to the end of March, down from £28.5m the year before.

The total masked a gulf between Mothercare’s burgeoning overseas business and its struggling UK operation. Its international division moved into South America last year with four stores and saw sales grow 17.8 per cent to £672.4m. Operating profits were up 26.9 per cent to £34.9m, despite the fact that its joint ventures in India and China and Australian spin-off are still in a start-up phase and made a £3.2m loss for the period.

The firm plans to accelerate its international growth, targeting sales expansion to 20 per cent a year and rapidly building up its store base in key markets including, Brazil, China, India and Russia.

UK sales were down 4.6 per cent at £560m, pushing the division to a £24.7m loss for the year, compared to a profit of £11.1m announced 12 months ago.

Calver said £20m a year would be saved by improving the efficiency of the UK operation, while the stores that are due to close lost £13m between them last year.

He said the 200-outlet portfolio that the group plans to keep are already profitable.

Analyst John Stevenson, at Peel Hunt, upgraded his recommendation on Mothercare from “sell” to “hold”, saying that if the domestic operation can break even by 2015 the valuation would be very attractive.

“The primary block to recovery, in our minds, is UK margin pressure,” he said.

“While we see more compelling recovery stocks with less execution risk, we expect the shares to build from here.”

Mothercare has suspended dividend payments until its growth plan delivers an improvement in results.