Maternity and baby specialist Mothercare revealed it slashed its underlying UK loss to £17m in its first half, as it revealed it has made “good progress” on its turnaround strategy.
Surprisingly, the results statement includes no detail of gross margin or cost performance, so while the UK loss was better than we had expected there is no discussion of how this was achieved. Of most surprise, management has declined to discuss gross margin levels ahead of the 9am analyst meeting, a line taken with all analysts this morning. So, while management remains comfortable with consensus profit expectations for the full year, we can only conclude that achieved gross margins are well down year-on-year as sourcing and input gains fail to offset price investment – John Stevenson, Peel hunt
The outperformance relative to our forecast is in the international business, where profit of £22.1m compares with our forecast £18.6m, as the profit margin, calculated as a percentage of international retail sales rather than statutory sales, has, unexpectedly, increased from 4.7% to 5.9%. However, international sales growth has been guided down from 15-20% to ‘similar to the first half’ (+10.8% sterling). Corporate expenses of £4.2m compare with our forecast £4.1m. As well as an anticipated £13.9m exceptional for the UK restructuring programme, there is an unexpected £10.6m write down of the Australian associate, a venture which has been difficult from the start – Jean Roche, Panmure Gordon
The new management team at Mothercare still have a lot to do to get things moving and overseas trading isn’t as easy as it used to be, but at least the overall losses were reduced a little in the first half and things appear to be on track for the full year at this stage – Nick Bubb, independent analyst
Overall, the company is making progress, with plenty of initiatives in place and the UK sales performance at least coming in ahead of expectations. It is still to be seen whether this is sustainable and what cost it will come at in terms of gross margin – Sanjay Vidyarthi, Espirito Santo
We do not believe Mothercare is an easy fix and brand repositions tend to take longer than expected. It will be difficult to make Mothercare relevant again for the modern mother as it has strong competition from Amazon and the supermarkets – Kate Calvert, Seymour Pierce
Most pleasing was the retailer’s return to UK like-for-like growth in the second quarter, stemming the run of 10 consecutive quarters that this was in negative territory. Elsewhere, losses have also narrowed during this period. Nonetheless, Mothercare has so far merely taken baby steps on the long road ahead to turn around its UK operations. Mothercare faces a long term challenge to turnaround a proposition which, over the last few years, had failed to adapt to the evolving UK retail landscape. This will have to be achieved against the backdrop of mounting competitive threats, not least in the form of Kiddicare and John Lewis’ continued expansion of its At Home format. Nonetheless, the retailer will take solace from its upturn in performance, which represents a sound base from which to drive the more customer-focused elements of its restoration plan – Joseph Robinson, Conlumino