Mothercare’s US suitor sends second profit alert
Friday 11 July 2014
The chances of a new approach from the American suitor of Mothercare slimmed yesterday after the Nasdaq-listed company issued its second profit warning this year.
Mothercare’s US rival Destination Maternity recently made two spurned approaches to the British retailer, detailing plans to take over its loss-making stores and move its Philadelphia base to the UK to take advantage of lower taxes.
But Destination, with about 1,900 outlets in the US, yesterday missed Wall Street forecasts and revealed a net sales slump of 6 per cent to $134m (£78m).
Destination said it could not update its 2014 profit and earnings guidance due to the provisions of the UK Takeover Code but said “as a result of the weakness in sales results” as well as “weakness in gross margin due to higher-than-planned price promotional and markdown activity” it expects earnings and profit for 2014 to be “below the guidance ranges provided”.
It said it will issue the full update on its third quarter by no later than 11 August.
Its chief executive Ed Krell said its sales were “considerably weaker than planned”. He blamed a “continued difficult overall economic and retail environment, resulting in decreased store traffic”.
He added that many pregnant women were opting for clothes that were not specifically maternity clothes because current fashions such as “maxi dresses, baby doll dresses and oversized peasant-style woven tops” could “more readily fit a pregnant woman than typical non-maternity fashions”. Destination also issued a profit warning in April and yesterday its shares fell 10 per cent during morning trade in the US.
It is the largest maternity retailer in the world and has more than 575 stores trading as Motherhood Maternity, A Pea in the Pod and Destination Maternity.
The Takeover Panel has given Destination until 30 July to table a firm offer or walk away from Mothercare.
Mothercare, which yesterday confirmed its interim chief executive Mark Newton-Jones had got the job on a permanent basis, has won support in its rejection of Destination from a large number of its shareholders. Shareholders Allianz and Fidelity recently spoke out in support of management.
Mothercare has had a tough few years and issued its latest profit warning in January. It has been cutting its store numbers in the UK.
Destination’s last approach was 300p a share, which Mothercare rejected. Mothercare’s shares closed up 6.3 per cent to 287p.
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