Mothercare's profit fall adds to new boss's woes

Maternity retailer's 10 per cent sales slump shows extent of task facing incoming chief executive
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By James Thompson

The scale of the mountain that Mothercare's new chief executive has to climb to turn around its ailing UK business will be revealed this week.

The maternity product retailer named Simon Calver – the head of Lovefilm, the DVD rental service owned by the online giant Amazon – as its chief executive in February but he does not join until 30 April.

But Mothercare is expected to post a disastrous 10 per cent slump in UK underlying sales in its fourth quarter trading update on Thursday. This reflects a further deterioration on its falling revenues in the previous three months, according to broker JPMorgan Cazenove, though Mothercare's overseas business of more than 1,000 stores is again expected to have performed better.

The fact that Mr Calver has not yet joined the group means that Mothercare – which is chaired by Alan Parker, the former head of the Costa Coffee-owner Whitbread – is not expected to reveal details of its strategic review for the UK business until it posts its full-year results at the end of May.

When Mr Parker started the review of the UK operations in November he reaffirmed Mothercare's plans to slash its domestic estate from 352 shops to 266 by March 2013.

But, some City analysts expect Mothercare to step up its closure programme, as it seeks to trim its annual rental bill and turn around its performance. Peter Smedley, an analyst at Charles Stanley Securities, said: "The fourth-quarter pre-close will give us a further important clue as to the magnitude of the task of fixing the Mothercare customer value in the UK and accelerating even further the shrinking of the UK store base."

Mr Smedley believes that Mothercare will probably end up with around 200 stores in the UK – or possibly fewer depending on the incoming chief executive's views after he has taken a good look at the business.

JPMorgan Cazenove forecasts adjusted pre-tax profits of only £1.4m for Mothercare in 2011-12, down from a profit of £28m the previous year. The retailer began a consultation period with 158 staff over potential redundancies last month.

JD Sports Fashion is another retailer to report this week. It is forecast to have delivered profits of £72m for the year to 28 January. This will be down from profit of £81.6m in 2010-11 partly because of a few weeks of trading losses at Blacks Leisure, which JD bought out of administration for £20m on 9 January. The sportswear group is likely to be pressed on Thursday about how many more of the Blacks and Millets stores it plans to close, having already shut 82 out of 290 in recent weeks.

Julia Reynolds, the chief executive of Blacks, has started a wide-ranging rebrand of the business, including revamping and localising its product offer. The group behind the JD brand, which also operates chains such as Bank and Scotts, said underlying sales in the UK and Ireland rose by only 0.1 per cent in the five weeks to 7 January.