Mothercare stock drops despite decline in UK losses

(Source: Reuters)

Retailer Mothercare has released prelimary results for the 52 weeks to 30 March, seeing UK losses diminish, falling from £24.7m to £21.7m. Throughout the year the firm closed 56 UK stores which it identified as loss making, leaving 255 outlets.

The compan reported that underlying profit before tax improved, increasing by 418.8 per cent to £8.3m on the back of swelling international sales. Despite this improvement, shares in the company have dropped by 12.25p to 351.75p per share.

Espirito Santo - Sell:

Mothercare has reported FY13 PBT of £8.3m, in line with market expectations and ahead of bottom of the range £2m estimate. International profit has been strong, despite pressure on sales, with 8% sales growth leading to 20% EBIT growth to £42m.

Overall, we do not expect any material changes to consensus PBT expectations at this stage for FY14 - at c. £19.5m. We are on £14.3m and will review our estimates and 145p FV.

Oriel Securities - Buy:

Mothercare has made progress on a number of fronts. Importantly UK losses dropped to £21.7m as improved service resonated with customers. This is not just management’s assessment of the situation, in the recent Which? survey of UK retailers, Mothercare moved from 76th position to 51st and ELC jumped from 49th to 7th.

Overall we are very encouraged by the progress reported today and remain supportive of the Mothercare recovery which should see the share back to 520p

Capital MSL - Sell:

The UK loss is worse than PGe £19.8m at £21.7m and total UK Direct sales are broadly flat to boot, (stripping out last year's 53rd week) vs. our forecast +0.9%, which is very disappointing given underlying market growth, and one of the main reasons for our Sell rating.

The shares are +c.19% since the April 11th Q4 trading statement, which confirmed that FY2013E PBT would be "in line with market expectations". We continue to believe that Mothercare will struggle to break even in the UK according to its own timetable (FY2015)

Numis - Buy:

We maintain our £21m PBT forecast for FY14, which is struck before the adoption of the new form IAS19 (incorporating this could reduce our PBT estimate by £2m - 3m, subject to confirmation). Our underlying FY15 estimate is also unchanged and assumes that the UK operation breaks even, in line with the LTIP target. On this basis, the shares trade on 9x PE to FY15F (using UK corporate tax rate), which we view as attractive in terms of risk/ reward.