Mothercare narrows losses, UK picks up -UPDATE

Mother and baby products retailer Mothercare narrowed first half losses, despite challenging trading conditions, as its UK performance improved and international sales continued to grow.

Like-for-like (LFL) sales fell 3.4% in the UK in the 28 weeks to October 13th 2012 compared to a decline of 7% in the equivalent period a year ago. LFL international sales grew 4.4%, slower than the 5.4% recorded in the same period last year.

The car seats and clothing retailer posted a pre-tax loss of £27.4m after one-off charges compared to a loss of £81.4m a year earlier. Underlying pre-tax losses, which does not include one-off items, narrowed to £0.6m from a loss of £4.4m before.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

"The current challenging economic conditions, particularly the difficult consumer and retail environment, create uncertainty around the level of demand for the group's products," the group cautioned.

However, Mothercare said it is confident that with its transformation and growth plan and long-term contracts with its global franchisees, it is well placed to manage its business risks despite the uncertain economic outlook.

Chairman Alan Parker commented: "These are early days and while there is much still to do, I remain confident that we are on track."

Chief Executive Simon Calver added: "Our results show early signs of progress despite the challenging trading conditions in the UK and the Eurozone. International profits have grown by 20%, while the like-for-like sales trend in the UK has improved and losses have reduced."

"Ahead of our peak trading period over Christmas, we are working hard to serve our customers better and focusing on the delivery of our plan."

Sell, some analysts say

"Second quarter UK like-for-like (LFL) sales were up +0.3%, returning to growth after a fall of 6.7% in the first quarter. We are maintaining our forecast fiscal year 2013 profit before tax (PBT) forecast of £8m (EPS 6.8p) and fiscal year 2014 PBT forecast of £20.4m (EPS 17.2p).

We do not believe Mothercare is an easy fix and brand repositions tend to take longer than expected. It will be difficult to make Mothercare relevant again for the modern mother as it has strong competition from Amazon and the supermarkets. We maintain our Sell recommendation and target price of 200p," say analysts at Seymour Pierce.

CJ