New look Mothercare looks to profitable future after torrid year
With Mothercare’s radical transformation into an international franchise operation now complete, the retailer is hoping the toughest of years (and some ugly trading figures) are now firmly in the past.
Mothercare said it’s now set to be “a profitable and cash generative international franchise operation in the future”.
An upbeat Mothercare chairman Clive Whiley said: We have diligently managed our way through this period of global crisis, and Mothercare has emerged in better shape than we went into it”.
He added: “The singular focus of the business is to return Mothercare to its rightful place as the leading global brand for parents and young children and to deliver the operational and financial performance commensurate with that leading position.
"We are now operating our innovative, working capital-light arrangements with our manufacturing and franchise partners around the globe for the Autumn/Winter 2020 collections. With these foundations in place Mothercare can move forward again with confidence”.
Indeed, Mothercare product are now available in over 1,000 of franchise partner stores in the UK and in 40 other countries around the world.
But it all looked so different at the beginning of the year when when continuing poor sales and ballooning losses pushed the retailer to the edge.
After shutting all its 79 UK stores in January, Mothercare subsequently secured a 10-year franchise deal with beauty and healthcare giant Boots, maintaining its presence in the UK.
But then came the first Covid shutdown in April when Mothercare said Covid-19 led to an “unprecedented demand shock” in April as global restrictions shut the doors of its retail partners.
The group said that only 27% of its franchise partners’ locations remained open at the start of the period.
However, it said that it had “substantially recovered” since then but it had seen an aggregate loss of retail sales to its franchise partners worth about £145 million.
And those sort of negative numbers pushed the group into a pre-tax loss of £14m for the 28 weeks to 10 October, from a loss of £5.7 million a year ago. Sales from continuing operations slid to £44.4 million, less than half the £102 million posted a year ago.
Worldwide sales fell 39.7% to £189 million in constant currency and fell 42% in actual currency.
Fast forward to now and Mothercare currently expects FY21 to deliver net worldwide retail sales of at least £320m and invoiced shipments of £80m.
Group revenue is expected to return to more normal levels in the short to medium term "and has the potential to grow, reflecting the higher average birth rates in a number of our core markets”.
Due to reduced revenues following the impact of Covid-19 and the one-off costs associated with the restructuring, the group expects to make a small EBITDA loss for the full-year. However, as revenue returns to normal levels, the group expects EBITDA margin for the business to return in line with what has been guided to historically, it noted.
Mothercare also said it has now secured a £19.5 million loan with to be used to repay outstanding amounts due under the group's revolving credit facility. At the end of October, net debt stood at £17.5 million.
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