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Nov 17, 2011
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Mothercare seeks solution for UK problem child

By
Reuters
Published
Nov 17, 2011

LONDON - Mother and baby products retailer Mothercare has launched a review of its struggling British business after a dire first half in its home market eclipsed strong growth overseas, plunging the group into loss.

Mothercare
Photo: Mothercare

Chairman Alan Parker told reporters on Thursday the review "rules nothing in or out" for the 352-store British business.

"The review ... will be looking at the right size and shape of our UK business. I must say though that I am quite confident there is a profitable UK business for Mothercare," he said, a comment suggesting talk about a closure was wide of the mark.

"It is a question of finding the right operating base, finding the right development opportunity for our e-commerce, (and) finding our right marketing platform."

Parker, who assumed temporary executive responsibilities after chief executive Ben Gordon left last month following a third profit warning this year, said the review will be completed in the first quarter of 2012.

Mothercare is battling intense competition in Britain from supermarkets and internet players, as well as consumer uncertainty in the face of tough economic headwinds.

In May, it detailed plans to close about 110 British stores over two years as leases expire.

Shares in Mothercare, down 70 percent over the past year prior to Thursday's update, were down 3.4 percent at 149.4 pence at 0931 GMT, valuing the business at 137 million pounds ($216 million).

"We struggle to find a compelling valuation argument with the UK business losing ground so rapidly," said Numis analyst Andrew Wade.

The company made an underlying pretax loss of 4.4 million pounds in the 28 weeks to Oct. 8, compared with a profit of 12.2 million in the 2010 period.

After booking exceptional charges of 78.5 million pounds relating to the restructuring of the British business, the company made a pretax loss of 81.4 million.

The first-half performance reflected a near 10 percent second-quarter sales slump at British stores open more than a year, as trading deteriorated after the August riots, particularly in bigger-ticket items such as push chairs and car seats.

Total first-half group sales rose 4.0 percent to 413 million pounds. British sales fell 4.3 percent and the division swung to an operating loss of 18.5 million pounds.

"Even taking the weak consumer environment into consideration ... the performance in the UK indicates a business which has lost its way in its home market," said Parker.

Mothercare's international sales from 975 stores in 55 countries rose 15.7 percent and operating profit increased 16.5 percent to 18.4 million pounds.

"Our international business has great potential, particularly in developing markets where we are only constrained by our capacity to grow," said Parker, who expected international sales to continue to grow 15-20 percent a year, with 150 stores opening every year.

Parker said the search for a new CEO was proceeding to plan, with the board having already reviewed a candidate list.

The company, which ended the half with net debt of 24.6 million pounds, cut its interim dividend to 2.0 pence from 6.4 pence.

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