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Mothercare slipped back into loss in the first half of the financial year as long-running difficulties in its Middle Eastern business and higher costs cancelled out sales progress in its home market, prompting a heavy fall in the company’s stock.
Like for like sales in the UK arm picked up in the 28 weeks to October 7, expanding 2.5 per cent year on year, but costs associated with its transformation plan dragged down earnings.
The company has been working to reduce its reliance on price discounts and improve its online offering while reducing the size of its brick and mortar store estate.
International sales were even weaker, falling 8 per cent, and chief executive Mark Newton-Jones said there is still “no clear sight as to when things will bottom out” in the Middle East, where confidence has been hit by weak oil prices and fears of an economic slowdown.
As a result, the company reported an adjusted pre-tax loss of £0.7m, down from a profit of £5.9m in the same period last year. After including one-off costs such as property activity and a writedown for receivables from a joint venture in China, statutory losses widened significantly, from £0.8m to £16.8m.
There were also signs of difficulties to come in the UK, with the company noting that it had “seen a softening in the UK market with lower footfall and spend” since the end of the reporting period.
High inflation and falling real wages have led to warnings of a slowdown in consumer spending in the UK, with official figures showing the first annual decline in retail sales for more than four years last month.
Still, while Mothercare admitted it was “not immune” to wider industry trends, it said it “is in a stronger position with a much-improved product and service offer and a more robust business model”.
Analysts at JP Morgan Cazenove said they do not expect to see any imminent upturn in the UK consumer environment in the months ahead, meaning Mothercare is likely to remain under pressure. They added:
While most of the bad news seems to be fully priced, delivery of a turnaround remains hinged on an improved consumer backdrop. We see this scenario unlikely to happen soon.
Shares in Mothercare fell as much as 19 per cent in early trading, and at publication time were down 15.9 per cent, to 70p.