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Retail: Mothercare shares take hit following profits warning

12:25 08 January 2014

Mothercare has warned it will miss profit expectations after fierce Christmas discounting left it nursing a big fall in UK sales.

Mothercare has warned it will miss profit expectations after fierce Christmas discounting left it nursing a big fall in UK sales.

Mothercare shares lost nearly a third of their value today after the baby clothing firm became the second big casualty of fierce Christmas price wars.

The company, which has 231 stores under the Mothercare and Early Learning Centre brands, dealt a blow to its turnaround hopes by revealing that profits will be short of the City’s expectations.

It said its loss-making UK business had been squeezed by the “highly promotional” efforts of rivals and from lower footfall over the period. A weak toy market also hit online sales at Early Learning Centre.

With currency deflation in its more successful overseas business also depressing earnings, shares slumped by more than 30% in early trading today.

The update is the second major profits warning in the sector after Debenhams said on New Year’s Eve that it had missed out on an anticipated surge in sales in the final week before Christmas.

Mike Dennis, a retail analyst at Cantor Fitzgerald stockbrokers, said: “The UK baby clothing and equipment market remains very competitive, with few retailers in this category making any positive retail margins, especially as high street clothing chains, internet offers and supermarkets continue to grow space and share.”

Mothercare’s UK sales fell 9.9% in the 12 weeks to January 4, with the figure 4% lower when recent store closures are stripped out from year-on-year comparisons.

Its internet operation saw sales fall by 1% after the company decided not to repeat the previous year’s free delivery offer.

Chief executive Simon Calver described UK retail trading conditions as difficult and said the company suffered volatility in some of its international markets, such as Russia and the Middle East.

He said: “In the UK, our stores suffered similar Christmas trading pressures to those reported elsewhere.

“Customer service scores continue to improve year on year but weaker footfall and higher promotional activity led to lower sales and margins.”

The group, which has been jettisoning loss-making stores as part of a three-year restructuring plan, made a loss of £21.7million in the UK during its most recent financial year.

N+1 Singer expects a deficit of £18m in the current year to the end of March, although stronger trading by international franchise stores means the company is still set to make a profit.

Analyst Matthew McEachran added: “This latest warning comes as a disappointment, highlighting that the business is still far from being in the shape necessary to cope with the volatile conditions.”

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