Mothercare and Woolies miss out on high street bonanza

Analysts worry that the retail boom may be fizzling out after strong trading in the run-up to Christmas
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Woolworths and Mothercare issued profits warnings yesterday showing that not all retailers have benefited from one of the strongest Christmas trading periods since the boom times of the late 1980s.

The warnings overshadowed strong trading updates from New Look, Debenhams and JD Sports.

The mixed picture coincided with new figures which showed the retail sales boom came to an end earlier than expected after a buoyant run-up to Christmas. According to the Footfall Index, which monitors the number of visitors to major shopping centres, the number of shoppers in the week beginning 7 January was down 9.6 per cent compared to the week before and 6 .1 per cent lower than the year before.

This was underlined by the latest figures from John Lewis which showed that sales in its department stores in the week to 5 January were 1.3 per cent down on the same week last year. This followed the previous week's 17 per cent increase and means the group's department store business is still running behind budget for the year.

One retail analyst said: "Companies under bought because of 11 September and the warm October. As a result it has been relatively easy to clear stock in the winter sales."

Nick Bubb at SG Securities, said: "Christmas wasn't as good as it's been made out to be. It was very late and the spending dropped away early."

However, Richard Hyman at Verdict, the retail consultants, said most retailers had benefited from a benign economic backdrop. He pointed to the British Retail Consortium's figures for December showing a 6 per cent like-for-like sales growth on last year as evidence of a good Christmas. "There have been few years when we have seen that sort of growth. And none of that has been inflation," he said.

Woolworths, which demerged from Kingfisher in August last year, saw its shares fall 13.5 per cent to 37p when it revealed a 3.5 per cent fall in underlying sales over Christmas. The company was hit by higher-than-expected costs in cutting the stock mountain it inherited at the time of the demerger. Woolworths also under-ordered in key areas like DVDs which have been one of the best-selling items this Christmas.

Gerald Corbett, its chairman, said: "The main thing is we have cleared the stock position and we are now debt free."

Analysts have cut their current year profit forecasts from about £50m to between £12m and £15m.

The warning overshadowed the appointment of Trevor Bish-Jones as the new chief executive at Woolworths. Mr Bish-Jones, 41, joins from Dixons where he was head of the Currys chain.

Elsewhere Mothercare issued its third profits warning in four months due to continuing problems with a new warehouse run in conjunction with Tibbett & Britten. The distribution difficulties have led to stock shortages in the shops. As a result, underlying sales over Christmas were down 4 per cent on the previous year. Toy sales were badly affected. The company said the warehouse was now operating normally but profits for the full year would now be only £4m compared with analysts' forecasts.

Mothercare has already taken a £4m exceptional charge to cover the costs of running extra distribution capacity. Yesterday it said there would be an extra £3m cost for a one-year contract to run extra warehouse space. The shares fell 10p to 215p but Chris Martin, its chief executive, said the key elements of the Mothercare recovery were still in place. "Clearly we have had a major setback over the past three or four months. But we have now drawn a line under the warehouse issue. And over a 12 to 16-month period we have seen significant profit growth, a new management team come in and a return to dividend payments."

The best performance yesterday came from New Look. The fashion retailer reported underling sales growth of 8.8 per cent over Christmas with gross margins up by 6 per cent. The shares bounced 15p to 164p on the news that full-year profits will be above market expectations. Seymour Pierce raised its full-year forecast from £42m to £51.5m.

Stephen Sunnucks, the chief executive, said New Look's decision to broaden the appeal of its ranges and move to larger stores had proved popular with customers. This has led to fewer markdowns and a winter sale that ended a week earlier than last year.

Mr Sunnucks added: "Our outperformance has been down to our strategy. We are well placed going forward."

Debenhams, the department store retailer, also did well with like-for-like sales up 8.5 per cent in the 12 weeks to 12 January. Matthew Roberts, the finance director, said: "Men's and women's clothing were successful over Christmas, and that's half our sales."

As for the current year many retail experts are forecasting a tougher 2002. Verdict is predicting retail sales growth of 3.1 per cent this year, compared to 6.2 per cent in 2001. But others say sales could be boosted by a "feel-good" factor because of the Golden Jubilee and the football World Cup.