Maternity products specialist Mothercare (MTC) trades more than 4% higher at 123.75p after reporting a first statutory profit in five years and outlining plans to revive its distressed international division.
Two years into its turnaround strategy, the retailer reports good progress with its UK recovery, though its overseas stores still face significant macro and currency headwinds.
Our negative stance on the global retailer for parents and young children, based on reasons we outlined in our recent Play of the Week article and in a feature on competitive threats, has proved a winning trade thus far. Yet we concede there are grounds for optimism in today's statement.
Mothercare's full year results reveal underlying pre-tax profit up 51% to £19.6 million, though investors should note this result represents improvement from a low base and is only in-line with forecasts downgraded following a disappointing fourth quarter update.
Like-for-like sales grew 3.6% with a boost from strong online growth, while losses were reduced by more than 64% to £6.4 million, still a significant deficit, though the UK arm was returned to profitability during the second half.
Driven by a strategy of closing underperforming stores, a programme of refurbishments and much-needed product range improvements, this domestic revival combined with a significant year-on-year drop in exceptional costs helped Mothercare swing to a statutory profit before tax of £9.7 million, having been mired in losses for the previous four years.
CEO Mark Newton-Jones says 'the results highlight the significant progress we are making towards returning the UK to profitability. Improvements to our customer offer, both in store and online, and the look and feel of the store estate are driving like-for-like sales growth for a second consecutive year.
'Nearly 40% of the store estate is now in the new and much improved format and the feedback from customers continues to be positive.'
Crucially, Newton-Jones stresses this sales growth is not at the expense of gross margins, which have also returned to growth, up 70 basis points following five years of decline and reflecting improved product quality, better buying negotiations and a focus on selling products at full price, Mothercare having weaned itself off discounts.
Investors also welcome news that a review of the international business has been completed. The group aims to implement management, store and marketing initiatives designed to export the key elements behind the UK recovery to its overseas operations, which trade under a franchise model.
Alarmingly, international like-for-like sales slumped 4.5% last year and underlying profits headed 12.2% south to £40.3 million amid downwards margin pressure.
Mothercare is not only being hurt by the weaker oil price, which has damaged consumer sentiment in the Middle East, and slower economic growth in China; it has also been hit by adverse currency moves, principally the sharp devaluation of the Russian rouble.