Mothercare sells ELC, cuts debt, store closures ahead of plan
today Mar 12, 2019
Mother and baby products specialist Mothercare said Tuesday that it will focus more closely on its core brand with the sale of it Early Learning Centre (ELC) chain.
ELC is being sold to Teal Brands Limited, the holding company of the Entertainer group of companies, for £13.5 million. But Mothercare is retaining ownership of some of the inventory that will be sold over the next few months
It doesn't mean the end of the Mothercare-ELC link though as the company and The Entertainer have struck concession deals, which make sense given their shared customer base and the fact that they currently share space in a number of locations.
The company also offered some updates about its transformation plan and said that its UK store closure programme, which will result in a total estate of 80 stores by the end of March 2019, is ahead of the original schedule. It brings the group down from 137 stores in May 2018, making it one of the most radical closure programmes currently being seen in UK retail.
Its product outsourcing initiative is also under way and should begin to yield margin benefits from the coming autumn season. The company is also on track to deliver cost savings of at least £90 million a year.
And it has been cutting its debt load with an aspiration to be bank-debt-free by the end of the year. This objective has been “greatly assisted” by the sale and leaseback of its UK head office last year. This brought the company a cash consideration of £14.5 million, although of course, it also means that it will incur rental costs in the future that it wouldn't have had without that sale.
The ELC sale is also part of this and the company said that it should generate £17.5 million (including the sale price and the extra stock to be sold) to further reduce its debt.
The actions it has taken have been designed to drive a greater focus on strengthening its global brand, with improved product design, marketing and distribution of Mothercare products around the world.
The company said that it has a “solid presence in the toy market through the ELC brand,” but doesn’t have “the necessary capital, resources or scale in this category to continue to invest and develop the own‑brand ELC toys needed to maximise returns from this specialist brand.”
CEO Mark Newton-Jones added that the company has "made significant progress in recent months as we continue our strategic transformation to deliver a sustainable and profitable future for Mothercare. This disposal of Early Learning Centre provides a further step towards eliminating our bank debt, and our new concession arrangements with The Entertainer will bring our customers an even stronger Toys offer, both in stores and online.”
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