Storehousetakes axe to Mothercare

STOREHOUSE, the struggling Bhs and Mothercare retailer, disappointed the market again yesterday when it issued a warning on first-half profits alongside plans to close 68 branches of Mothercare at a cost of pounds 16m.

Storehouse shares fell 11 per cent to 116.5p, close to their all-time low, after the company said the combination of a difficult retail environment and a heavy investment programme would have a significant impact on first- half profits.

The shares have now underperformed the market by more than 70 per cent in the last five years. Some institutional shareholders said the latest setback would increase the pressure for management changes.

However, Keith Edelman, the chief executive since August 1993, said he still has the support of the board: "I am still enjoying the job but it is a difficult market out there. If we had a brand like Gap it might be a bit easier. But Bhs is not an easy business to run."

As part of a major restructure at the group, Storehouse is cutting 500 jobs. It has already cut 100 jobs at its Bhs division, while a further 240 management positions have gone at Mothercare. Another 150 will be lost as a result of the shop closures.

Storehouse wants to move away from its smaller, high street Mothercare shops, which are too small to display the full range. It wants to expand its number of larger Mothercare World formats instead. These would be opened on high street sites as well as out-of town locations, the company said.

The pounds 18m of exceptional charges, including pounds 16m for the Mothercare closures and pounds 2m for the Bhs restructuring, cut full-year profits from pounds 125m to pounds 80m. Underlying profits fell by 25 per cent to pounds 104m. Bhs has been up against a more price conscious Marks & Spencer while Mothercare has lost share in children's clothing to Gap and Asda's George label. Mothercare lost sales due to poor availability and over-lapping sizes which confused customers. The chains plans to introduce lower entry price points later this year to try to woo shoppers back.

Mothercare's profits fell from pounds 31.4m to pounds 17.9m while Bhs profits dipped by 10 per cent to pounds 86.4m. Like-for-like sales at Bhs and Mothercare fell by 2.6 and 2.3 per cent respectively. But both have struggled in current trading with group like-for-like sales down by 6.8 per cent.

Mr Edelman said the company would continue to invest in store refurbishment, addressing years of underinvestment.

Ashley Thomas, a retail analyst at SG Securities supported the Mothercare strategy. "It is the right thing to do. The larger out of town stores were cannibalising sales at the smaller ones."