Mothercare considers UK spinoff as sales slump

Parent and child retailer Mothercare said on Friday that it was considering spinning off its UK retail business as it reported a drop in sales.

In an update for the 15 weeks to 13 July, the company said total group sales fell 9.2%, with UK sales 23.2% lower and 3.2% weaker on a like-for-like basis as a result of its extensive store closure programme. Online sales in the UK were down 12.1% during the period.

Meanwhile, worldwide sales fell 9.4%.

Mothercare sounded a cautious note, warning that the medium-term outlook for the UK market will continue to be "uncertain and volatile, accompanied by fragile consumer confidence".

"Against this backdrop and the need for continued promotional activity, gross margin improvements in the UK are expected to take longer to materialise than previously anticipated," it said.

As a result, underlying full-year pre-tax profit is expected to be "broadly comparable" to the prior year, inclusive of an estimated £2m hit from the adoption of IFRS16.

Mothercare also said that its "immediate priority" is to complete the transformation of the business with a near-term focus on "evolving and optimising" the ownership, structure and model for its UK retail operations as an independent franchise.

Chief executive officer Mark Newton-Jones said: "The UK retail market remains challenging and though the rate of decline in LFL sales has moderated, margin investment in promotional activity has been necessary to stimulate sales, both in our stores and online. The impact of this has negated much of the margin benefits we had expected to materialise. Furthermore, we have observed a lower than expected transfer of sales following the CVA store closure programme which completed in early April 2019.

"Despite a difficult backdrop, we continue to improve our customer offer and have launched a number of new initiatives including specialist sales and service training to all our store colleagues. We have also launched an improved customer credit offer, both online and in- store. At an early stage, we are observing increased basket sizes for those customers taking up this offer."

At 0935 BST, the shares were down 11% at 17.50p.