Mothercare posted a full-year group loss before tax and after exceptional and other items of £102.9m today while new chief executive Simon Calver outlined a three year turnaround and growth plan. The City reacted to the news
“Results are as expected. More importantly, positive details have been provided regarding the transformation and growth strategy. These indicate a better trajectory in most areas than outlined in the ‘route-map’ [statement in April], especially in relation to the timeframe for achieving ‘acceptable’ UK profits. This update is likely to trigger a notable sentiment improvement and some meaningful upgrades.” - Matthew McEachran, Singer Capital
“Today’s statement contains details of the phasing of cost savings. At face value, this would mean upgrades to our forecasts, however, we think that the UK market dynamics will be very difficult to fight. The new e-commerce platform launched on May 1 – we view this as positive, but we don’t think this will be enough to turn the brand around.
We rate Mothercare shares Sell, based on our concerns for the brand in the UK, which has undergone a period of neglect here against a fiercely competitive market backdrop. Our forecasts assume that the UK business only begins to make a profit in the year ending March 2016E, rather than March 2015E, which is the stated aim of the transformation and growth strategy.” - Jean Roche, Panmure Gordon
“These results reveal, in a nutshell, the inherent state of the business. While the global potential remains clear and growth continues, the UK is floundering and this has destroyed profitability.
The restoration plan is spot on in its diagnosis of the challenges facing the retailer. Taking costs out of the UK operation, reducing store numbers, moving into high growth international markets and improving online are all necessary steps. Indeed, a re-shaping of the global store portfolio is somewhat overdue; in the digital age national coverage can be achieved with far fewer UK stores and the real opportunity now lies in the strength of the brand in Asia and other international markets.
Downsizing a property portfolio while cutting costs, developing a multichannel offer and improving customer service is a notoriously difficult path that many retailers have set out on in recent years, but few have completed successfully. If Mothercare can persuade investors to get on board for the long term and successfully implement its plans despite its lack of cash then it stands a chance, but it is certainly facing a turbulent few years.” - Matt Piner, Conlumino
“More guidance being given on the year ahead. The company expects UK like-for-likes in FY13E to trend at a similar rate to FY12 (so around -6%), with first half worse than that as pricing initiatives will take effect more in the second half. Gross margin is expected to be broadly flat as input cost tailwinds are reinvested in pricing (particularly in autumn/winter clothing ranges).” - Sanjay Vidyarthi, Espirito Santo
“Our concern remains gross margin; however, profits have clearly troughed and a UK breakeven by 2015 implies the shares are trading on. While we see more compelling recovery stocks with less execution risk, we expect the shares to build from here.” - John Stevenson, Peel Hunt