* Q1 UK like-for-like sales up 0.9 pct
* CEO to move away from aggressive discounting in UK
* Will focus on cost reduction, cash generation, margins
* Q1 international sales at constant currency up 14.7 pct
* Shares down 8.4 pct
(Recasts, adds detail, CEO, analyst comment, shares)
By James Davey
LONDON, July 17 The new boss of British mother
and baby products retailer Mothercare, the subject of
bid interest from U.S. group Destination Maternity,
said the company operates in an outdated way in its key home
market and requires investment.
Mothercare operates in 60 countries but has been hit hard by
cut-price competition from supermarket groups and online
retailers in its domestic market, where it does not expect to
make a profit until 2016 or 2017.
"The business needs modernising and requires investment in
its infrastructure, its stores and its head office systems,"
said Mark Newton-Jones, who became the firm's permanent chief
executive this month after four months as interim CEO.
"As a result, many of the retail practices are somewhat
outdated when we compare ourselves to more modern retailers."
Talking to reporters on Thursday, when Mothercare also gave
an update on first-quarter trading, Newton-Jones would not say
how much investment is needed in the 220-store UK business,
whether additional capital is required or if he plans more store
closures beyond those already projected.
He said he would detail his plans for the business in the
autumn after he has completed a strategic review.
Newton-Jones has already changed Mothercare's trading
strategy in the UK, moving away from aggressive discounting and
concentrating on full-price sales to rebuild gross margins.
He has also talked to suppliers about improving terms, is
consulting with 15 percent of the 4,500-strong UK workforce to
adjust their hours and plans improvements to in-store and online
service, as well as product improvement, with less emphasis on
The CEO said Mothercare's lead time for bringing in new
products is half what it should be - about 20 weeks, against
10-12 weeks at fast-moving retail businesses.
Nevertheless, Mothercare has rejected two bid proposals from
its U.S. suitor, saying they undervalued the company and its
Shares in Mothercare, down 41 percent over the past year,
fell 8.4 percent to 257 pence by 0828 GMT, valuing the business
at 227 million pounds ($388 million).
Destination Maternity's second bid proposal was pitched at
300 pence a share.
Newton-Jones declined to say if he expected the U.S. company
to come back with a higher offer before a July 30 deadline.
"Given the track record of quarterly volatility, and
uncertainty in terms of the new chief executive's plans, we
think that the risk-reward ratio here is unfavourable," said
analysts at Liberum, adding that they do not think a successful
bid from Destination Maternity is likely to emerge.
Mothercare sales at British stores open for more than a year
rose 0.9 percent in the 15 weeks to July 12, its financial first
quarter, compared with the same period last year.
Sales in its overseas division were up 14.7 percent in the
period on a constant-currency basis but increased 0.8 percent on
a reported basis, reflecting currency devaluation in Russia,
Turkey, India and Indonesia.
($1 = 0.5844 British Pounds)
(Editing by Neil Maidment and David Goodman)