Mothercare feels the pain in high street warfare

The baby products retailer said UK like-for-like sales were 1.9 per cent lower in the 13 weeks to October 12, with margins squeezed by the highly promotional market in home and travel products.

Autumn and winter clothing ranges suffered the same warm weather challenges as the rest of the sector but gained market share, it added.

Shares fell by around 4 per cent in trading after Mothercare described UK margin conditions as “more challenging than expected”.

The retailer has 1,393 stores in 60 markets but closed five loss-making UK stores in the period as part of its plan to downsize to an estate of around 200 by 2015.

It currently has 191 outlets under the Mothercare brand and another 46 Early Learning Centre stores.

Total UK sales were down 6.9 per cent as a result of the reduction in store space, but this was offset by sales growth of 12.4 per cent overseas. Total group sales were 0.5 per cent lower in the quarter.

Mothercare is overhauling its UK business with product launches including its own value clothing range, as well as feeding and pushchair products under the Innosense and Xpedior brands respectively.

Simon Calver, chief executive, said: “In line with the transformation and growth plan, we are continuing to make fundamental improvements to our business in the UK, which will allow us to compete effectively in a changing marketplace.

“However, the UK market in home and travel remained highly promotional and autumn-winter clothing faced the same warm weather challenges as the rest of the sector but is gaining market share.

“While this has resulted in a margin environment that is more challenging than expected, we continue to focus on profitable sales and cash margin.”

Numis Securities said a resilient UK sales performance had been undermined by the increased margin pressure, although it believes some of this squeeze should prove temporary.

It cut its forecast for profits in the current year by £2m to £17m and by £6m to £33m for the following year.

Numis analyst Matthew Taylor said: “While disappointing, investors should not overlook the significant improvements being made to the underlying busi-ness.”