New chief executives of troubled companies always enjoy a brief honeymoon period, when they can enthusiastically set out their “three year turnaround plan” and implicitly rubbish everything their predecessors have done.

New chief executives of troubled companies always enjoy a brief honeymoon period, when they can enthusiastically set out their “three year turnaround plan” and implicitly rubbish everything their predecessors have done.

At Mothercare, Simon Calver comes with an interesting background and, though we shuddered when we heard him talk at the results presentation this morning about the value of the ‘Six Sigma’ approach when he worked at Dell in 2000 and the power of “lean thinking”, he does know about overseas brand roll-out, online retailing and customer loyalty tools.

Overall, first impressions of him are favourable (he even had his first experience of becoming a parent last year) and his diagnosis of what has gone wrong at Mothercare UK is hard to fault.

Unfortunately, if a business is starting off with a trading loss of £25m - before the usual big exceptional costs - on sales of £560m an awful lot has gone wrong. The swing from useful profit into big loss is “unacceptable”, as the company says, not least as it has completely undermined the shareholder value created by the impressive growth of the overseas franchising side of Mothercare. To get back into profit will require a combination of higher sales, lower costs or a better gross margin.

Cutting costs is always, in this day and age, the first place that new chief execs start with and, lo and behold, we are told that £20m of non-store support costs can be taken out over the next three years, via some pruning of the big HQ overhead at Watford, plus economies in warehousing, marketing and field support.

But cutting costs is never a sufficient factor in a business turnaround, just as the much-vaunted “property strategy” over the last three years, of closing high-rent high street stores and moving to lower-rent out of town stores, has been powerless to prevent the erosion of Mothercare’s bottom-line.

Can Mothercare improve its gross margin? After a horrendous 500 bps decline in 2011/12 you would hope for some margin recovery, not least as Mothercare’s poor suppliers are now being asked to share their pain, but all such buying economies will be reinvested in the unavoidable lowering of prices that will take place this Autumn to try to improve Mothercare’s competitiveness. So Mothercare will do well to avoid any further gross margin erosion in the next three years.

And what of sales growth? It is always tempting to think that because 80% of all mums come to visit Mothercare that the business enjoys a fantastically solid and loyal customer base that will stay with them as their kids get older.

Alas, Mothercare has never been able to survive off just its baby and maternitywear business and its stores have always had to be filled up with kids’ clothing and toys and hardware to make ends meet, which is where the problem comes in… because a ton of other companies are after that market as well, online and offline, and have been doing a better job in recent years of serving customer needs than Mothercare.

Overseas, the burgeoning middle classes aspire to shop at a classy brand like Mothercare, but in the UK Mothercare just can’t get away with selling expensive kids’ clothes and toys and hardware in bleak looking and clinical stores that would make even Tesco blush.

Improving baby feeding and changing facilities in the stores will help, modestly, but it would have been more encouraging to hear today from Simon Calver about plans to step up the tentative moves made by Mothercare last year to create a better and more exciting shopping environment.

As always in these situations, the world is not standing still waiting for Mothercare to return to its former glory and improve its online operation. Far from it, as Morrison’s of course has very big expansion plans for Kiddicare, whilst Mamas and Papas has a secure hold on the upper end of the market and the supermarkets get better every year at selling kids clothes and toys.  

With the UK economy in the doldrums, getting Mothercare UK back into profit in three years is a big ask and things will clearly get worse before they get better, with management already warning of a worse first half this year before action on pricing and service kick in during the second half.

Meanwhile, overseas store openings continue apace, with Latin America the latest hunting ground, but it would be unwise to think that things will stay set fair for ever overseas as Simon Calver battles to turn the tide in the UK.

History would suggest that something will go wrong overseas. Maybe in three years’ time Mothercare will discover that its cookie-cutter approach of opening hundreds of identical looking and bland stores around the world has left the door open for more exciting competitors to emerge…