Mothercare margins stabilise as sales crawl higher
Trading over Christmas was in line with expectation at Mothercare, as the baby products retailer UK profit margins stabilised and international expansion provided solid third-quarter sales growth.
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As the group continued to reduce the level of promotional activity as it looks to re-establish itself as a full-price retailer, worldwide sales rose 2.2%, though group sales including royalty payments and international franchise distriution costs fell 2.9%.
With continued strong growth from all territories, international sales grew 14.4% at constant currencies from an 11.5% increase in selling space, though currency effects weighed heavily on reported retail sales growth, dragging it down to 5.4%.
UK like-for-like sales rose 1.1% against fairly easy comparatives from last year, with total UK sales down 1.9% despite the amount of store space being cut by 4.2%. Online sales continued to perform well with 16.1% growth.
The UK gross margin rate further stabilised thanks to more full-price sales, lower levels of promotional activity and holding back the end of season sale until Boxing Day.
Chief executive Mark Newton-Jones, apppinted last July, said: "Third quarter results are in line with our plan. Importantly, in the UK, we have continued to reduce the level of promotional activity and went into the end of season sale on Boxing Day, with less stock and later than in recent years.
"These actions are re-establishing Mothercare as a full price retailer and in turn stabilising our margin."
Looking forward, he admitted trading conditions remained "challenging" but said management was continuing to make good progress on its strategic plan.
"Our vision is clear - to be the leading global retailer for parents and young children."
Analysts were reasonably impressed.
Liberum, which retained its 'sell' on the shares, said the update was "reasonably positive looking", and said the talk of lower promotional activty, UK LFL sales growth and "useful" cuts to UK store space will strike a positive note.
"Our biggest concern with the company is that increasing competition and too many stores have pushed UK operations into a deeply loss-making position. We think the strategic plan is sensible and the company is showing signs that it is delivering but we see Mothercare as one of the toughest turnaround stories in UK retail."
Numis applauded a "solid" update against a tough backdrop, leaving its forecasts and 'add' recommendation unchanged.
"In our view, there are clear signs of a more pragmatic retailing approach, and the group remains focussed on completing the store rationalisation process, the store refit and infrastructure modernisation programmes. This should significantly reduce the UK operating loss over the next few years, allowing investors to focus on the successful International business."