Slide in sales wipes 31 per cent off Mothercare
Thursday 09 January 2014
Mothercare suffered a humiliating setback to its plans for a turnaround in its UK business as the baby and childrenswear business issued a shock profit warning.
Its directors admitted sales in the run up to Christmas had been poor with fewer customers coming through its doors, disappointing online sales and heavy discounting affecting the bottom line.
The news sent shares in the retailer plummeting 31 per cent to 291.5p as investors who had previously given the chief executive Simon Calver the benefit of the doubt over his plans for rebuilding the company appeared to desert him. Sales in the UK for the 12 weeks to 4 January fell 9.9 per cent, or 4 per cent on a like-for-like basis, compared with the same period a year ago. Total group sales fell 6.1 per cent and pre-tax profits will hit around £8m instead of an expected £13.5m.
Mr Calver said lessons would be learned from the decision to offer 50 per cent discounts just days before Christmas, but said it was difficult to not follow competitors in offering lower prices.
He said: "Hindsight is always an interesting test. There was a late rush and that was compounded with a soft autumn period. We didn't want to be in a position where we had too much stock in stores. We had to remain competitive." The department store group Debenhams suffered a similar fate last week when it too issued a profit warning, blaming, in part, heavy discounting for the fall in profits.
In Debenhams' case, however, its chief executive Michael Sharp defended his decision to offer discounts in the run-up to Christmas, calling it a "strength" of the company. At Mothercare, toy sales were also dented, especially on it's Early Learning Centre website after the scrapping of free postage on orders last year.
Mr Calver said it was the right decision to end the free delivery for any order under £50 and said in the long run it was more profitable. He said: "Last year people were ordering £3 pots of paint, so it was costing us £5 in delivery charges and wasn't economically viable." He said it was too early to say what kind of impact yesterday's profit warning would have on his strategy to make the UK profitable again, or if it would speed up the store closure programme.
Its international business also suffered during the period, with currency deflation hitting its numbers, and a slowdown in growth in countries where there has been economic volatility. Two of its biggest regions, Russia and the Middle East, also suffered due to unseasonable weather.
He admitted the warning would do nothing to change perceptions of the Mothercare brand as over-priced and dowdy.
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