Mothercare's share price plummets as turnaround plan is dampened by international woes

Catherine Neilan
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Mothercare: The turnaround is a long labour (Source: Getty)

Mothercare's share price plummeted more than 17.7 per cent this morning as the baby retailer revealed its growth was being hurt by ongoing struggles with its international division.

The figures

In the UK, like-for-likes were up 2.1 per cent for the 11 weeks to 26 March, while online sales rose 5.6 per cent and now account for around 35 per cent of total UK sales. Total sales were up 0.8 per cent.

The new strategy of ditching promotional activity and pushing full price products appears to be paying off, with another increase in gross margins.

However international sales fell 9.7 per cent, with currency headwinds exacerbating the figures further to a 10.8 per cent decline on an actual currency basis.

All four regions saw a reduction in both constant and actual currency sales, Mothercare said. In the Middle East consumer sentiment was dampened by the sustained lower oil price, resulting in a significant decline in constant currency sales. In Asia - China in particular - was affected by weakening consumer confidence, while Europe and Latin America were impacted by adverse currency moves.

Total group sales for the fourth quarter were up 1.4 per cent. The business said full year figures would come within expectations.

Why it's interesting

Mothercare is part-way through a major turnaround effort being overseen by Mark Newton-Jones, and while he and his team are making good progress in the UK, external factors are clearly taking their toll internationally.

Still the company is in better shape than it was when Newton-Jones was parachuted into the company a couple of years ago and the signs suggest that when the environment improves, performance will to.

Key areas of progress include a shift away from a high level of sales, which appears to have been accepted by consumers without too much resistance, and a rejigging of the store portfolio. Newton-Jones is also placing greater emphasis on areas such as fashion, although that is yet to make much of an impact on the group figures.

What Mothercare said

"Overall Group underlying profit for FY2016 is within the range of current market expectations," Newton-Jones said.

"The UK is responding well to our strategy with continued sales growth and improved margins. International continues to be impacted by adverse currency and weakening consumer confidence in some key markets as economic headwinds persist."

"In the UK we have delivered our eighth consecutive quarter of positive like-for-like sales growth with a full year of improved margins. Almost 40 per cent of space is now in the new and much improved format, which along with a revamped online offer, improved product and service are being well received by our customers."

"International continues to be adversely affected by the sustained economic and currency headwinds. Whilst all four regions are softer, the Middle East and China in particular have been impacted by weaker consumer confidence. Along with our partners, we continue to see opportunity to grow space and are now translating key learnings from modernising the UK into our international markets."

"In the year ahead, we expect to make further progress in the UK. However, our international markets are likely to remain challenging with the current trends in space, sales and currency continuing into the new financial year. Nevertheless we remain firmly focussed on our strategy to build our business both in the UK and internationally and our vision remains clear - to be the leading global retailer for parents and young children."

In short

Mothercare is making good progress - now it just needs the international environment to improve.

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