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By
Reuters
Published
Jul 15, 2010
Reading time
2 minutes
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Mothercare hit by weak UK sales, tough outlook

By
Reuters
Published
Jul 15, 2010

Mothercare
www.mothercare.com - Swimwear 2010
LONDON, July 15 (Reuters) - Mother and baby products retailer Mothercare (MTC.L) posted a bigger-than-expected drop in quarterly sales in its main British market and said profit margins would suffer as it battles a tough consumer outlook.

The news offset a strong rise in Mothercare's overseas sales and sent its shares tumbling as much as 6.9 percent on Thursday.

Britain's retailers are worried that steps to cut government borrowing, such as higher taxes and public spending cuts, will hit consumer demand in the months ahead. A survey on Wednesday showed consumer morale at its lowest for a year.

"In the UK we continue to plan cautiously for the remainder of this year," Mothercare Chairman Ian Peacock said.

"In this context, we expect to invest further margin in our customer offer which will be offset, in part, by cost savings and our property restructure."

Singer analyst Matthew McEachran said this implied that gross profit margins would fall about 100 basis points this financial year, compared with expectations of a flat outcome, and that analysts' consensus profit forecast was likely to fall by about 5 percent, or 2 million pounds ($3 million).

Mothercare, which has 1,115 stores in 52 countries but makes about three quarters of its retail revenue in Britain, said sales at UK stores open at least a year fell 4.1 percent in the 15 weeks to July 10, the first quarter of its financial year.

Including VAT sales tax, the decline was 2.8 percent.

Analysts had expected a fall similar to the 1.6 percent reported in the fourth quarter of last financial year, though they also noted that comparable figures from the year before had become tougher.

International sales rose 20.3 percent, led by eastern Europe, the Middle East and Asia, ensuring group sales climbed 0.4 percent.

BLOOMING MARVELLOUS

Mothercare also said it had agreed to buy maternity-wear brand Blooming Marvellous for an undisclosed sum.

Chief Executive Ben Gordon told Reuters the group planned to roll the brand out across its international markets.

He also had high hopes for the launch of new toys, including a space station to complement the group's top-selling robot rocket, in the run up to Christmas.

"Mothercare's defensive qualities and the exposure to interesting overseas market growth deserves a premium rating, but the rating is relatively high, and the market is nervous about anything slowing down," said Arden Partners analyst Nick Bubb.

He put his 600 pence share price target and "add" investment rating for the stock under review.

Mothercare shares have lagged the UK general retail index by 10 percent this year. At 0730 GMT the stock, which trades at 14.4 times forecast earnings compared with a sector average of 12.5 percent, was down 4.8 percent at 525.5 pence, valuing the firm at about 466 million pounds.

Mothercare's global network sales, which include wholesale as well as retail sales, rose 8 percent, with international markets accounting for more than half of the total.

(Editing by Samia Nakhoul)

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