Mothercare boss to get 'ruthless' after massive losses

The UK arm of baby products retailer Mothercare has made a £103m loss, but let's not throw all the toys out of the pram just yet...

by Michael Northcott
Last Updated: 19 Aug 2013

It’s lucky that Mothercare has got a new boss on board: presenting his first set of results for the company, Simon Calver revealed that the group saw annual like-for like sales slide 6.2% to £560m up to the end of March. The result was a loss of £102.9m, compared with profits of £8.8m last year. 

There are some mitigating factors in the loss, like the one off value writedown of £55m on the Early Learning Centre, the flagship toddler toy brand, but the company says that the UK’s ‘challenging economic backdrop’ ultimately dragged sales down. Calver has promised to get ‘ruthless’ with a three-year cost-cutting plan to return the firm to profitability, including reducing the number of UK stores from the current 311 to 200 by March 2015.

But Mothercare can’t just blame the economy, it’s also losing out to its competitors. The pricing of its products has been made uncompetitive by smart online retailers and the UK’s major supermarkets. This means that Mothercare’s ability to ‘turn things around’ is being held back. 

Simon Calver is a new recruit to Mothercare, having joined from film rentals firm, Lovefilm, at the end of April, and whilst the figures are worrying, there is a stable financial platform for him to work from. The firm managed to agree a refinancing deal with Barclays and HSBC, so it can afford its store reduction programme. The focus now will be on the more profitable outlets, and there is talk of cutting payroll in the head office by as much as 15%.

The results are frustrating for the company, considering worldwide sales actually grew 6.4% to £1.2bn. But that tricky UK business is proving to be the black sheep of the family: even after stripping out the cost of the ELC writedown, underlying profits plummeted 94% to £1.6m for the group. In emerging markets, the company is doing better - its international division saw profits soar 27% to £34.9m - and there are plans to ‘rapidly’ increase the number of stores it has in India, China, Russia and Brazil. 

Increasing the size of its footprint in these explosive economies will no doubt strengthen the business, but whether it can turn around the UK business (and if Calver is the man to do it) remains to be seen…

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