Mothercare has become the second major retailer to issue a profit warning in its festive update, following Debenhams’ lead last week.
UK like-for-likes shrank 7.2% in the 12 weeks to December 30.
The retailer suffered from lower gross margins due to higher levels of discounting, but hailed positive sell-through of stock and cash generation.
The nursery specialist now expects adjusted group profit for the year to be between £1m and £5m. Pre-tax profits stood at £19.7m last year.
Mothercare had previously hit an unforeseen rocky patch in its transformation plan, with trading faltering and redundancies on the cards. Boss Mark Newton-Jones had hailed a “watershed moment” for the retailer, saying the heavy lifting of its plan was over.
This profit warning is the second issued by a major UK retailer in under a week and speaks to how challenging high street conditions currently are.
Mothercare’s international arm fared slightly better than its UK arm. International sales were down 3% in constant currency and 6.8% in actual currency, but the retailer insisted that key markets showed signs of improvement towards Christmas.
Online sales grew 8.5% in constant currency and 7.4% in actual currency.
In the UK, online sales declined 6.9%. Total sales were lower than in previous years, reflecting the planned store closure programme. Mothercare ended the period with 143 stores, including four ELC stores.
Newton-Jones said: “In our UK business, we took a conscious decision to remain at full price to protect our brand positioning prior to Christmas but to then discount more heavily in the end-of-season sale.
“In line with previous announcements and as part of our transformation strategy, we have taken decisive action to reduce our central cost base. The planned financial benefits of this will materialise in the next financial year.
“Taking this approach into account we expect net debt at year-end of approximately £50m, and at this level we have sufficient liquidity and covenant headroom within our existing facilities.”
He added: “Going forward, we are not anticipating any improvement in the short-term market conditions for the UK and on this basis the adjusted group profit for the year is likely to be in the range of £1m-£5m.”