Patchy Mothercare performance shows both challenges and underlying progress

By

Sandra Halliday

Published
May 4, 2023

Mothercare’s full-year trading update on Thursday showed further evidence that the company’s turmoil and reinvention of itself in recent years is both yielding rewards and presenting ongoing challenges.

The company, which is broadening its product offer and targeting new markets, said that unaudited net worldwide retail sales by franchise partners hit £322 million for the year to 25 March. That figure includes no contribution from the Russian market (which was suspended at the end of its previous financial year) and was an increase of 8% in continuing markets.

The global specialist brand for parents and young children said the full year should see adjusted EBITDA of £6.5million-£7 million, ahead of analysts’ expectations.

It added that it had net debt of £12.3 million at the year end and its pension scheme deficit was “materially reduced to £39 million” from £124.6 million several years ago and £78 million in March last year.

Digging deeper into the figures, that £322 million sales figures was actually down from £385 million for the previous financial year that had included £88 million from Russia. 

The company appears to be doing well in some regions but it still faces challenges in some important markets. In the Middle East, for instance, its sales were down 1%. That’s a worry given that these markets account for 43% of its total retail sales. It said Saudi Arabia was the weakest of these markets “reflecting certain local factors, some of which are transitory”.

If both Russia and the Middle East are excluded, the retail sales rise for the year goes up to 17%.

That said, as previously reported, in many of its territories its partners still need to clear old inventory due to the suppressed demand during Covid-19. “These factors will continue to impact its results for the financial year to March 2024, which will defer previously anticipated growth notwithstanding ongoing improvements in product and service,” the company said.

As for the adjusted EBITDA figures of £6.5 million to £7 million, Mothercare explained that for the prior year to March 2022 its Russian territory directly contributed some £5.5 million to its adjusted EBITDA. Coupled with some margin benefit due to shipping delays in last year’s results, “means there is a year-on-year improvement in the underlying profitability of the business, once these elements are excluded”.

Its medium-term guidance is “unchanged for the ‘steady state operation’ in more normal circumstances and we believe our continuing franchise operations remain capable of exceeding £10 million operating profit and we are now focused on accelerating our growth in both existing and new markets”.

Clearly there remain some issues around the business, although the underlying story is one of progress.

Chairman Clive Whiley said: “Once again our results demonstrate the resilience we have introduced to the business over recent years, where we continue to generate both profit and cash. Although our immediate priority remains to support our franchise partners as they emerge from a period of suppressed demand, ultimately for the benefit of our own business, we have also redoubled our efforts to restore critical mass.

“Accordingly we are engaged in discussions to drive the Mothercare brand globally by widening the bandwidth of our product offering, alongside penetration into new territories via a variety of routes to market.”