Last updated: October 5, 2011 4:43 pm

Mothercare warns on plummeting sales

Shares in Mothercare fell by almost a third after the baby goods retailer warned on trading. The group blamed gloomy UK consumer sentiment and growing competition from online retailers and supermarkets for a sharp deterioration in sales.

Mothercare said UK like-for-like sales had fallen by nearly 10 per cent over the past 12 weeks compared with the same period a year ago, extending the decline in sales at its UK stores.

However, that fall in UK sales has been magnified over the past month, Mothercare said.

“In the past four weeks, consumer demand has dropped off significantly,” said Ben Gordon, chief executive, adding that in the week of the UK riots, like-for-like sales were down 20 per cent.

“We’re now much more pessimistic about the Christmas period looking forward and we think it will be a disappointing performance.”

Andrew Wade, a retail analyst at Numis, lowered his full-year forecast for like-for-like sales from a 3.5 per cent drop to a 7 per cent drop, and cut his pre-tax profit expectation from £29m to £7.5m ($11.6m).

“This result was far worse than we had anticipated,” said Mr Wade. “Despite the quality of its international business and the benefit of the work on its UK portfolio to come, we struggle to find a compelling valuation argument with the UK business losing ground so rapidly.”

The news dragged down shares in Mothercare – which traded above 600p in December – by 42 per cent on Wednesday to 180p.

The international side of the business was one of the few bright spots. Sales rose by 17 per cent in the 12 weeks to October 1, increasing total group sales by 4.9 per cent.

Mr Gordon blamed the UK’s recent spell of unseasonably warm weather for some of the decline in sales, but added: “The real issue is underlying economic malaise. UK customers aren’t spending as much as they were.”

The biggest sales falls have been in the retailer’s home and travel range, which sells push chairs and car seats. Mr Gordon believes that the overall market for these products has shrunk by 10 per cent.

He said bigger discounting in the run-up to Christmas could “potentially” be seen, adding: “We are ensuring our pricing is very competitive.”

The recent warm weather and poor UK high street sentiment has continued to depress sales at Thorntons.

The British confectioner on Wednesday reported a 7.6 per cent decline in like-for-like sales to £46.5m in the 14 weeks to October 1, compounding the two profit warnings that the group issued earlier this year.

“As expected, the retail environment continues to be challenging with weakness in high street footfall,” said Jonathan Hart, chief executive.

Like-for-like sales in Thorntons’ stores fell by 7.8 per cent, while franchise sales fell 6.4 per cent.

The British confectioner plans to close as many as 180 stores to “de-risk” its business model, cutting about half of its UK estate over the next three years. Thorntons shares fell by 1¾p to 44¼p.

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