Mothercare Shares Tumble On Profit Warning

Naomi Rovnick and Cat Rutter Pooley

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Mothercare’s shares lost a quarter of their value on Monday after the children’s goods retailer warned of a sharp downturn in profits following a drop in festive sales.

In the latest sign of a tough Christmas and New Year trading period for many retailers on the high street, Mothercare said its same-store UK sales fell 7.2 per cent in the 12 weeks to December 30 compared with last year. Its online sales dropped 6.9 per cent.

The group’s shares dived by 25 per cent in early trading to 46.5p.

Mark Newton-Jones, chief executive, said Mothercare had witnessed a “sudden shift” in customers’ willingness to spend money on its products after the Bank of England raised interest rates by a quarter-point in November. Wage growth running behind inflation was another factor contributing to consumers’ caution, he said.

“Other than Cyber Monday [in late November] where we grew sales by 8 per cent, the only growth we saw was in the end-of-season sale,” he said. “It was very clear that the customer was waiting for deep discounts.”

Mothercare said adjusted pre-tax profits will be in the range of £1m to £5m in the year to May. This compares with £19.7m in 2017.

At least 20 retailers, including Tesco and Marks and Spencer, will reveal this week how they performed over Christmas. Recent data have pointed to a lacklustre festive trading period for many of them.

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“Mothercare will have underperformed most people,” said Tony Shiret, analyst at Whitman Howard. “But the environment is undoubtedly testing overall.”

UK consumer spending fell for the fourth straight month in December, according to Visa data compiled by IHS Markit, making 2017 the weakest year for household expenditure since 2012. Boxing Day trading was also weak, according to retail intelligence provider Springboard, with footfall 5.2 per cent lower than on the same day a year previously.

Analysts expect Marks and Spencer to report a decline in same-store sales of between 1 per cent and 3 per cent when it updates on trading for the third fiscal quarter on January 11. Last week, department store group Debenhams warned on full-year profits because of weak Christmas trading.

Mothercare’s trading may have been particularly weak, however, because chief executive Mark Newton-Jones this year bucked a retailing trend and did not slash prices in the run-up to Christmas.

The group has also long struggled against cheaper competition from supermarkets and online groups such as Amazon, but Mr Newton-Jones has been determined to plough on with the company’s strategy of selling quality goods at higher prices.

“We took a conscious decision to remain at full price to protect our brand positioning,” Mr Newton-Jones said. “We do not want to be a company that goes on sale every two weeks, as this does not build the long-term trust from customers.”

Mothercare shoppers, he added, had also been buying fewer of its premium lines. “Within our pricing system of good, better and best, where we have seen the pinch is at the top end,” he said. “People are looking for value and managing their budgets more tightly.”

Source : https://www.ft.com/content/06be0470-f443-11e7-88f7-5465a6ce1a00

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