Bottom Line: A costly decision hits Mothercare at home
TEARS before bedtime for Mothercare yesterday as a profit warning sent shares down almost a third for the mother and baby retailer. Its turnaround plan, which brought the firm back to profit for the first time since 2010 last autumn, seems in danger of turning into a merry-go-round, leading things back where they were before.
Yet there are two different stories here: home and abroad.
Overseas, where growth prospects are stronger, Mothercare continues to expand, with international space up 12.5 per cent year-on-year for the third quarter. There’s no doubt it has had some recent setbacks even here, with emerging markets underperforming and exchange rates moving against it. Its global sales were up a measly 0.4 per cent in the quarter year on year. However, that rises to 3.3 per cent in constant currencies. Even with some of the bloom coming off the Bric economies, this strategy still looks like it offers decent prospects for driving future growth.
The home front looks far worse: total UK sales were down 9.9 per cent year on year, and down 4 per cent even in like-for-like sales. With UK stores slashed back – 4.9 per cent down year-on-year – Mothercare is saving money but also reducing its footprint and the convenience of its click and collect offering. Failing to continue a free delivery offer from its Early Learning Centre website also proved an error. Instead, money was ploughed into heavy Christmas discounts, hurting margins.
Digital and in particular mobile shopping was once again the big trend of this festive season. The retailers who got it right, while holding their nerve on high street prices, proved winners.
There’s life in British retail yet, and last year was a reminder that even emerging markets can offer a choppy ride. But Mothercare’s turnaround will now have to prove its promise all over again.