The seller of prams and other babycare goods gave some of the most precise details yet of how a retailer would respond to the rise in costs trigged by the fall in sterling since the UK voted to leave the EU.
Mark Newton-Jones, chief executive, said about half of the company’s products were bought in dollars, meaning the cost of these had risen by 18 per cent. Mothercare had “negotiated out” a third of that increase and that “the rest we will pass on through the selling price of the product”. The company buys almost all of the other half of its products in sterling.
The impact of the steep drop in sterling in the past nine months is only feeding through to retailers now because the hedging contracts that shielded them from currency movements for a limited period are rolling off.
Mr Newton-Jones also said that changes in business rates, a property tax that is rising sharply this month in some areas, were a “net neutral” for Mothercare because increases in some parts of the country were being cancelled out by falls elsewhere.
In a trading update for the 11 weeks to March 25, Mothercare revealed that like-for-like sales in the UK, where the company earns two-thirds of its revenues, rose 4.5 per cent compared with a year earlier.
Online sales in the UK rose 14 per cent and the group said 41 per cent of sales in its home market were now made online. Mr Newton-Jones said the stores were increasingly functioning as “showrooms” for products that were eventually ordered online.
However, total group sales, which count UK sales as well as royalties and shipments to foreign stores, fell 12.2 per cent, which the company said was down to a change in the timing of shipments.
The chief executive said he was halfway through a turnround programme that involved revamping stores and investing in online sales. Last year Mothercare made a full-year profit, after four years of losses.
Sales in its 1,338 shops abroad, which are operated through franchises, fell 2 per cent in constant currencies, but rose 15 per cent in actual currency during the quarter, compared with a year earlier.
Sanjay Vidyarthi, analyst at Canaccord Genuity, said the UK division “still faces significant challenges and is highly operationally geared. With the bulk of the ‘right-sizing’ of the UK store portfolio now complete, the task of maintaining like-for-like sales momentum to offset underlying cost pressures should not be under-estimated.”
The shares rose 3 per cent in afternoon trading on Thursday but are down 35 per cent over the past year.
Additional reporting Nicholas Megaw