Fourth Mothercare profits alert makes shares squeal

Shares in Mothercare slumped 14 per cent after the struggling baby goods retailer issued its fourth profits warning in less than a year.

The group, which was forced to shake up its management team, said underlying sales fell 1.1 per cent in the 13 weeks to 10 January. Its shares hit a fresh 12-month low, falling 14p to 86.5p.

Analysts said the warning was likely to reignite takeover interest. They slashed their full-year expectations for the group, forecasting losses of £12m, down from about £4m. Mothercare, which has been plagued by distribution problems, is valued at £61m.

Ben Gordon, the former Disney director who was appointed chief executive in December, admitted that the performance was "absolutely unacceptable". He said a detailed operational review was under way. This could include selling off some of the group's down-at-heel high street stores, analysts said.

Richard Ratner, at Seymour Pierce, said the figures were "horrendous", adding: "They've got a good name and that's where it ends." Pete Mackinnon, at Numis Securities, said: "It just amazes me. They have massive opportunities to grow but are not getting basic in-store principles right." Mothercare reported revenues of more than £400m last year.

The decline in like-for-like sales came after a 4 per cent fall over the Christmas period in 2002. In the 41 weeks to 10 January, underlying sales were down by 1.8 per cent, after a 2.1 per cent fall in the 28 weeks to 13 October.

The group's profit warning came despite a 3.1 percentage point improvement in gross margins, which it said reflected "a less promotional and discounting stance". It added that autumn/winter stocks had been substantially cleared in the sale and remnants would be sold through the clearance stores.

Mothercare, which in addition to internal problems has suffered from increased competition as major supermarket chains muscle in on the childrenswear market, said group sales rose by 1.6 per cent in the 13-week period. A strong performance overseas, where sales rose by 30 per cent, helped.

Mr Gordon said the review was about "fixing the retailing basics in the business". This is likely to mean changes to the group's distribution system, which has suffered since a new centre was opened in Daventry, Northamptonshire.

One of Mr Gordon's first moves was to appoint Colin Astbury, formerly of Laura Ashley, as head of logistics. Mr Gordon said other areas of the review would include better sourcing, stocking better products, reassessing the store portfolio and improving customer service.

Mr Gordon insisted he joined for a turnaround story not a takeover bid and declined to comment on whether the group had received any approaches. He said it was "too early to comment" whether he would bring any female talent into the business.