Investment View: Mothercare is being nurtured back to health

Is Simon Calver's TLC going to help Mothercare to grow up into something better than the truculent child it has been for the last few years? I'm beginning to think that there's a chance. I was critical of Mr Calver's appointment: An internet guy for a flailing mother-and-baby chain with a big bricks and mortar estate (he made his name at LoveFilm). Hardly the obvious choice. That's not least because many of the chain's recent failures seemed to stem in part from the company failing to recognise what its customer base wanted and needed from those shops (you'd know if you'd ever tried to push a pram around the tightly packed shelves).

When I talked to him, however, he appeared to have grasped the problem and was willing to put himself on the spot by offering to demonstrate that he has listened to some of the chief criticisms I've levelled. I'm going to take him up on that and will report back the next time I update on Mothercare.

On the face of it, his numbers still don't look great. Like-for-like sales, which excludes the impact of store closures (and there have been a lot), looking at stores open at least a year, fell by 7.4 per cent in the 12 weeks to 12 January. In the 41 weeks to 12 January they fell 6.5 per cent, so the decline appears to be accelerating.

The international business is still motoring, with sales up 14.8 per cent in the most recent 12 weeks, 15.1 per cent over the 41 weeks. And new stores are opening all the time.

UK online, however, was sluggish, with growth of just 0.9 per cent.

Mr Calver explains the grim-looking UK figures as being partly the consequence of aggressive discounting which produced a late surge that flattered last year's figures in comparison to this year's. He says the group has since abandoned the practice of pricing things high and then cutting the price heavily at which time a diminishing band of customers would pile in.

Instead, the watchword is value – utilising global clout to do things like consistently selling three sleep suits for £7 rather than £14 at a profit throughout the year rather than just at sale time.

Mr Calver says he's slightly ahead of plan in his three-year turnaround programme. Those like-for-like sales are projected to fall by 3 per cent in the 2013/2014 period, then pick up, when the company will start more aggressive marketing of its wares.

It may need to. The supermarkets are always a threat. John Lewis has been particularly good in this sphere, and there are other competitors knocking on the door.

That said, Mothercare could still come good if Mr Calver continues to push in the right direction, and those overseas businesses are something not many UK retailers can rival. I'm beginning to think it is time to take a punt on this stock. But it remains a big risk, so I make it only a speculative buy.

Another company where the action is overseas is Burberry, which had something of a rocky 12 months after it was made one of The Independent's 10 to follow in 2012. It finished the year up, but only just.

Things have perked up a bit since its recent trading statement, however, which showed sales ahead 6 per cent at stores open at least a year. The group continues to open new outlets at places where a luxury retailer ought to be – if you visit Shanghai this year you'll probably pass one of them.

The shares aren't cheap, trading on just under 21 times earnings for the year to 31 March, falling to just over 18 times in 2014, with a prospective yield of just over 2 per cent. But I think these shares are worth holding for the long-term.

Not so Home Retail Group, the slightly odd combination of Argos and the DIY retailer Homebase. HRG shares have been in vogue after it unveiled a better-than-expected 2.7 per cent rise in sales at Argos for the 18 weeks to January, fuelled by booming demand for tablet computers and the departure of competitors from the scene. Earnings estimates have been boosted, by £10m or so. However, Homebase continues to get squeezed. The DIY retailer offers a much more friendly service than its rival B&Q, but margins are falling, sales are falling, and the DIY market is contracting. Last year's comparatives were also weak, making this year's figures look better.

For the year to the end of February the shares trade on 23 times earnings, falling to about 18 times (although estimates are being raised). This is another recovery play but note that the fall in multiple for next year isn't as steep as that at Mothercare, and HRG operates in a tougher space with the competitive threat arguably greater. Sell.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before