Mothercare update offers little good news but no shocks
Under pressure retailer Mothercare’s trading update was closely watched on Thursday as the company talked about an ongoing decline in store visits but continued increases in online sales.
There was no mention of a company voluntary arrangement (CVA) that many have speculated could happen, with the firm just sticking to the facts and giving few hints about future plans.
It was the first update delivered by brand-new CEO David Wood and it wasn't an easy read given how much the mother and baby products retailer is struggling.
But it did say that in the 12 weeks to March 24, the international sales performance was "encouraging" with growth in the key Middle East market.
So what was the story for the first three months of this calendar year, the company’s fiscal Q4? It certainly illustrated just how much of a challenge it has ahead.
It said the “UK like-for-like decline continues to be impacted by [the] continued consumer trend of reduced store footfall,” and it looks like sales are getting worse.
On Thursday it said that UK comparable sales in Q4 fell 2.8%, which is worse than the 1.3% drop of quarters one-through-four inclusive. That said, online sales now account for 49% of its total and sales through its website rose 7.2% in the period, which is better than the 2.8% rise for the year-to-date.
However, online sales – which the company defines as turnover both through its website and through in-store sales via iPads – were up only 2.1%, although at least this was better than the 1.2% of the year-to-date.
It all meant that total UK sales fell 5.6%, worse than the 4.8% for the full year, although given that selling space has reduced by almost 11%, that's not quite as bad as it looks on the surface.
Mothercare said international retail sales in actual currencies fell 11%, worse than the 5% of the year-to-date, while in constant currencies they fell only 3.7%, which is better than the almost 6% drop seen for the year. It seems that the currency exchange issues are causing additional problems, even in markets where the performance is improving slightly.
It all added up to worldwide sales dropping over 9% in the quarter and nearly 5% in the year. And total group sales, which include royalty payments and the cost of goods dispatched to its franchise partners, were down 0.3% in the quarter and 1.9% in the year to date.
Whichever way you read the figures, it’s clear that the company has problems. But there seemed to be no new shocks in these numbers and Wood stressed that said the performance was in line with previous guidance.
He added that the UK retail trading environment “remained relatively muted in the quarter, with a continuing trend of lower footfall in stores, though there was an encouraging return to growth online.” And it looks like the company has had to cut prices because he also said: “In this competitive climate, promotional activity has been necessary to stimulate customer demand.”
So what is his immediate priority in his new job? “To ensure Mothercare is put back on a sound financial footing and to improve its financial performance,” he said. “We continue to make good progress in reducing the size of our UK store estate in response to changing consumer preferences and in reducing our central cost base, but our central focus must be customers and their experience, securing Mothercare's reputation as the number one specialist for parents.”
Wood added that “we remain in constructive dialogue with our financing partners with respect to our financing needs for FY19 and beyond, and we continue to explore additional sources of financing to support and maintain the momentum of our transformation programme. All of these discussions are ongoing and further updates will be given as appropriate.”
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