Investors are looking beyond dramatically reduced profits at Mothercare to focus on the impressive performance of its international operation.
It's not often a company reports a before tax loss of over £100m (albeit after exceptional charges of £104.4m) and sees its stock price rocket, but that is exactly what Mothercare achieved on Thursday morning as investors backed the management's "Transformation and Growth" plan.
The difficulties of the child-focused retailer are well documented - it is closing 111 of its stores in the UK to leave it with an estate of just 200 outlets. The closures have been enforced by increasing competition from Internet retailers and the likes of John Lewis and Morrisons. The company has also suffered from British consumers cutting their spending in the downturn.
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The store closures have led to a one-off restructuring charge of £104.4m while total sales in the UK fell 4.6% to £560m; even worse, like-for-like sales were down 6.2%.
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The problems in the UK led to a statutory total group loss before tax of £102.9m versus a profit last year of £8.8m. Underlying group profit before tax slumped to £1.6m from £28.5m the year before.
So why, exactly, was the stock up 17.7% by 11 o'clock on Thursday? The answer lies in the fast growing international network of 1,028 owned and franchised stores, of which 318 are in free-spending Asian markets, with a further 290 in the Middle East. Together, this network achieved sales of £672.4m in the 12 months to the end of March, up 17.8% on the prior year, with like-for-like sales up 6.1%.
With the new Chief Executive, Simon Calver, getting the backing of the banks with a new £90m overdraft, Mothercare looks like it may well weather the current storms in Europe. Calver himself said: "We have a long way to go, and the plan to bring the UK business back to acceptable levels of profitability will take three years."
He added he was "confident about opportunities ahead". It looks like the market believes him.
"Our focus on cost reduction is a priority in achieving a performance improvement this year. Overall we now have a robust plan for transformation and growth with new, strong leadership capable of delivering the results," said Alan Parker, who reverted to the role of Non-Executive Chairman after the appointment of Calver in February.
The group is still looking for a new finance director, after Neil Harrington resigned in April as an Executive Director and Finance Director of the company to take a role with a private equity organisation.
BS
