Mothercare reports 88 percent dive in profits following CVA

Mothercare plc revealed the exact extend of its financial struggles in its annual report, a few hours after the maternity and babywear specialist confirmed its had filed for Company Voluntary arrangement, with plans to shut 50 store and cut 800 jobs to keep the business going.

Although the retailer reported positive results for the first six months of the year to March 24, 2018, the second half of the year proved to be incredibly difficult for Mothercare, as sales were hit by weak store footfall and margin impacted by higher levels of discounting. Adjusted profit before tax fell 88.3 percent during the year, down from 19.7 million pounds for the 52 weeks to March 25, 2017, to 2.3 million pounds for the financial year to March 24, 2018, in line with the profit warning issued in January.

Mothercare profits for the year to March 24, 2018 plunge 88.3 percent to 2.3 million pounds

The maternity and babywear retailer also revealed a pre-tax loss of 72.8 million pounds during the fiscal year in comparison to 7.1 million pound profit in 2017. Total sales slipped 1.9 percent to 654.5 million pounds during the financial year and net debt was 44.1 million pounds. Mothercare attributed part of its loss to its retail restructuring and closing costs, as well as store asset impairments and onerous lease charges.

"After continued momentum in the first half, the business saw a softening in the UK market from the end of September onwards with store sales down for much of the second half," said David Wood, Chief Executive of Mothercare in a statement. "Against this difficult backdrop, the business managed its cash tightly and delivered lower net debt than our January guidance. However, profit is significantly lower than in the previous year."

Mothercare's fall into the red was driven by a weak performance in the UK, which saw a 717.1 percent year-on-year drop in loss before tax after adjusted items from minus 9.7 million pounds to minus 79.4 million pounds. Adjusted UK operating loss dropped 353.1 percent year on year, from minus 4.4 million pounds to minus 19.8 million pounds. In addition, total UK sales fell 4.8 percent year on year to 437.6 million pounds and UK like for like sales slipped 1.3 percent in comparison to a growth of 1.1 percent reported in same financial period one year ago.

However, online sales in the UK continued to grow, with the channel now accounting for 43 percent of Mothercare's total UK sales. In comparison to its UK sales, Mothercare's international results were considerably stronger, although the retailer also reported decline in certain areas. Adjusted international operating profit dropped 4.9 percent to 33.6 million pounds, but international profit before tax after adjusted items increased 10.9 percent to 28.4 million pounds.

"The business has modernised significantly over recent years, but we expect the changing dynamics and challenges in the retail sector to continue, so we need to move faster with the execution of our transformation plans," added Wood. "In the last few months, we have been holding discussions with our lenders and other financing partners in order to set the business on a firmer financial footing to continue this transformation.

"As a result of this, we are also announcing today an accelerated and major restructuring of our store estate, alongside a refinancing which will secure the funding required to ensure a sustainable and successful future for Mothercare. These plans have the support of all key stakeholders and we are confident we can use this platform to rebuild a specialist proposition that meets the needs of our parenting communities."

Photo credit: Indi Samarajiva via Flickr