Mothercare working on turnaround plan as annual profits sink

(Sharecast News) - Parent and baby products retailer Mothercare has said it is working on a "step change" in its business to return the brand to growth, following a disappointing set of annual results and weak start to the new financial year. The company, which warned of "materially reduced profitability" this year even after adjusted earnings halved in the 53 weeks to 29 March, said it is now "accelerating our efforts to return the brand to growth and scale".

"Our global brand is now significantly bigger than our current business is able to extract the full value from. [...] The current business model could support much higher volumes, and such increased volumes would result in the vast majority of increased income falling straight to the bottom line," the firm said.

The comments came as Mothercare reported a 31% drop in annual turnover to £38.9m, with worldwide retail sales by franchise partners falling to £230.6m from £280.8m.

Adjusted EBITDA fell 49% to £3.5m, resulting in an adjusted pre-tax loss of £2.5m, compared with a £3.5m profit a year earlier.

Meanwhile, over the first 23 weeks of the new financial year, franchise partner sales totalled just £80.7m, down from £107.8m previously, owing to continued uncertainty in the Middle East, a winding down of a sales arrangement with Boots in the UK, and franchise partners clearing old inventory.

"We are accelerating discussions with several parties to monetise the operational gearing in the business by restoring critical mass, especially in the UK," said chair Clive Whiley.

"This is designed to reinforce the efforts of our talented management team to drive our product offering to new heights, having demonstrated the inherent strength of the Mothercare brand over the last year."

Shares were up 3.5% at 2.95p by 0934 BST, having fallen by more than a third so far this year.