January 8, 2014 / 9:03 AM / 4 years ago

UPDATE 2-Mothercare shares plunge after warning of profit shortfall

* FY pretax seen at 8 mln stg vs 16 mln f‘cast

* UK like for like sales down 4 pct in 12 wks to Jan. 4

* Group sales down 6.1 pct

* Sees FY margins down around 200 basis points

* Shares drop 30 percent (Adds details, CEO comments)

By Neil Maidment

LONDON, Jan 8 (Reuters) - Mother and baby products retailer Mothercare has warned that full-year profit would reach only half of what analysts had expected, after record Christmas discounting and a drop in visitors to its stores hit sales and margins.

The surprise statement sent Mothercare shares down 30 percent, wiping 112 million pounds ($183 million) off its stock market value and adding pressure on Chief Executive Simon Calver, who is trying to restore the UK division to profit in the face of fierce competition from online rivals and supermarkets.

Mothercare joins other UK retailers such as department stores group Debenhams to post disappointing post-Christmas updates, reflecting tough competition and pressure on consumer finances, though some in the sector have still managed to defy such factors with a healthy performance.

Mothercare, which styles itself as Britain’s No. 1 retailer of items such as prams, pushchairs and car seats and which makes about 70 percent of sales in Britain, said on Wednesday UK like-for-like sales fell 4 percent in the 12 weeks to Jan. 4.

Total group sales, which includes its international business, fell 6.1 percent.

“We’ve seen footfall (store visitors) down, in our major markets clothing is down, toys are down and home and travel is slightly down as well,” Calver told Reuters.

“But the key thing on top of that is there has been lots of other promotional activity with late purchases coming into Christmas that has driven a lot of margin challenges,” the CEO added.


Margins are expected to be down around 200 basis points for the full year, added Mothercare, which had run offers including a 20 percent discount on clothing in the Christmas period.

The firm said it expected group pretax profit for the year through March would likely be 8 million pounds, ahead of a restated 5.9 million posted a year earlier but half of analysts’ forecasts of 16 million, according to Reuters data.

“Clearly these results have been disappointing, I think they reflect the nature of a turnaround where you get bumps in the road, however we feel absolutely confident in our plan,” Calver said, adding shareholders remained supportive.

Mothercare said economic volatility and currency deflation at its overseas businesses had also added to its woes in Britain, where the group said the toy market was weak.

The group, which has been closing loss-making stores as well as investing in new products, service and online to restore UK fortunes, had originally hoped to make a profit on its British operations by 2015, but said it was comfortable with analysts’ pencilling it in for 2016 to 2017.

Figures released on Wednesday by the British Retail Consortium showed British stores as a whole had offered their biggest pre-Christmas discounts in at least seven years last month.

Debenhams last week warned of a sharp fall in profit after its price cuts failed to spur a surge in last-minute Christmas shopping, while Marks and Spencer is likely to report its 10th consecutive fall in like-for-like sales on Thursday.

Yet others such as fashion retailer Next, which did not offer heavy discounts, have fared better. ($1 = 0.6098 British pounds) (Additional reporting by Sarah Young and Christine Murray; Editing by David Holmes)

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