Profit warnings mount up on the high street

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The Independent Online

Mothercare, the maternity retail specialist, yesterday became the latest chain to issue a profits warning, as last month's heavy snowfall and "formidable" competition from the big supermarkest took its toll on its Christmas sales of toys in the UK.

On the same day, the upmarket jeweller Theo Fennell and the greetings cards retailer Clinton Cards also warned profits would be lower than expectations, with both citing the severe weather. The warning from Clinton was not out of the blue, as it operates in a declining market, but those from Mothercare and Theo Fennell took the City by surprise.

The dire updates from all threeretailers followed profit warnings from HMV, the entertainment and bookretailer, and Alexon, the fashion group, which both blamed the dire weather. Marks & Spencer updates on Tuesday and Tesco two days later. Mothercare – which on home soil has 217 eponymous stores and 160 Early Learning Centre (ELC) shops selling toys and educational materials – said its underlying UK sales slumped by 5.8 per cent over the 12 weeks to 1 January, with the snow costing it £8m of sales. It said the snow accounted for about 4 per cent of this fall in like-for-like sales, with "toys particularly affected". As toys account for only 10 per cent of the Mothercare chain's turnover, ELC bore the brunt of the shortfall in toy sales.

Ben Gordon, the chief executive of Mothercare, said the way the snow fell this Christmas was "unprecedented". He said the first batch of snow at the end of November had hit online sales and the second flurry just before Christmas was "very damaging" for sales of toys in bricks-and-mortar stores.

Given that the group is primarily an out-of-town retailer, Mothercare's core customer base of pregnant women and mothers with new babies were also"adversely affected" in terms of getting to its shops, Mr Gordon said. In response, analysts at Peel Hunt said they expect to slash profit forecasts for Mothercare from £38.3m to £32.5m. City scribblers also questioned whether the weather was "disguising deeper" structural problems at Mothercare.

Nick Bubb, an analyst at Arden Partners, said that Mothercare's like-for-like sales in toys were down by about 10 per cent in the quarter. He added: "But it is unclear how much market share Mothercare lost relative to the supermarkets, etc, and it will be interesting to see what Tesco, Halfords and Argos say about toy sales next week when they report on Christmas. Did a lot of kids not get any Xmas presents?"

Taking a harder line, Jonathan Pritchard, an analyst at Oriel Securities, said: "We believe there are serious structural issues with the UK business that will be very difficult to solve, most of which pertain to the creeping aggression of the supermarkets."

Ben Gordon said: "The supermarkets have been here for a long time and they are formidable competitors, but Mothercare and ELC are two strong brands."

Mothercare's international retail franchise sales soared by 17.6 per cent, driven by new store openings that took its total to 885 overseas. Mr Gordon said: "Internationally we anticipate growing by between 15 per cent and 20 per cent for the foreseeable future." Total group sales at Mothercare grew by just 0.4 per cent.

Meanwhile, Clinton Cards, whichoperates the Clinton and Birthdays chains, unveiled dire trading for the 22 weeks to 1 January and said profits would be "significantly lower" than City expectations. Theo Fennell said underlying sales fell 7 per cent in December, which will lead to a profits shortfall.

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