Mothercare has good news and bad on Q1 trading

By

Sandra Halliday

Published
Jul 20, 2017

Mother and baby products retailer Mothercare had good news and bad on Thursday as a trading update for the 15 weeks to July 8 showed UK comparable sales rising. But in the first quarter of its fiscal year they seem to have slowed down from the faster pace of last year’s Q4.

And international ops remain challenging as its struggles in The Middle East continue, although the company said its overall performance is in line with expectations.

So what’s the story? On the plus side, UK comparable sales were up 1.9% during the quarter. It entered the end of season sale with lower stocks and is achieving a higher sell-through rate. Online sales grew by 3.3% and while total UK sales were 1.8% lower than last year, that reflected the ongoing store closure programme. The company is cutting out underperforming locations and looking at areas where it has store clusters with closures designed to avoid stores in close proximity that could cannibalise each other’s sales.

More negative was the international sales picture with turnover down 8.3% on a constant currency basis, while in actual currency, sales rose 2.2% as exchange rates artificially boosted sales.

Yet there was some good news too in the international unit. Its online sales grew 78% in actual currency and even on a constant currency basis they surged forwards by 53%.

As we can see, a very mixed set of numbers with reasons for optimism as well as plenty of work still to do.

CEO Mark Newton-Jones said the company has “continued to make progress in the UK… We have seen customers respond well to our end of season sale. While online sales recorded a lower growth, in contrast to higher sales growth in-store, we don't believe this represents an underlying permanent shift in customer behaviour. We are about to launch our autumn ranges, but it remains uncertain how consumers will respond to inflation.”

And uncertainty really is the big issue here as far as the UK is concerned. A look at the firm’s figures for the past year shows growth rates are fluctuating heavily and it’s still too early to call just how the future will pan out.

For instance, UK comparable sales rose only 1.2% in Q1 last year, which makes this year’s 1.9% a better performance. But comps rose 4.5% in Q4 so the latest quarterly figure marks a slowdown from that.

And UK online sales rose a healthy 6.4% a year ago and an even better 13.6% in Q4, again, making this quarter’s 3.3% look weak.

And the big issue internationally is the Middle East. Of the international performance, Newton-Jones said: “The challenging economic conditions in the Middle East continue and are impacting overall performance, and so the outlook remains volatile. We continue to export our learnings from the UK as our business improves here, to support our partners with the modernisation of their franchise businesses, and see further opportunities for growth both online and in stores.”

It really does seem like a case of ‘watch this space’.