A sharp summer rally in mother and baby products specialist Mothercare (MTC) came to a halt today, as the retailer reported a fall in first quarter sales. The shares fell 6.4% to 440p as investors digested a downbeat assessment of near-term trading prospects in its UK and Eurozone markets.
In a first quarter update, the £414 million cap reported a 3.4% fall in group sales. Revenues over the 15 weeks to 13 July were pegged back by a 7.9% decline in UK revenue. This included a 0.9% decline in like-for-like sales, in line with consensus yet disappointing in the context of weak prior year comparatives and reflecting pressures exerted by a more promotional market.
On home turf, the hard-pressed company continues to close loss-making Mothercare and Early Learning Centre stores and cut costs against a backcloth of fragile consumer confidence and the structural challenge from internet-based competition and large supermarkets. Clothing sales did benefit from the launch of a 'Value Essentials' range a year ago, although sales and margins generated from toy and home & travel products were affected by heightened promotional activity.
Chief executive Simon Calver, the former Lovefilm boss hire to steer the turnaround of Mothercare, was able to highlight a solid performance from online business Direct in Home, where sales grew by the best part of 15%.
Yet he conceded trading conditions 'have been challenging both in the UK and across our Eurozone markets and are expected to remain so for the rest of the year'. Thankfully, Caver can still count on overseas markets for growth with the retailer now sporting 1,116 franchise stores across 60 countries. During the quarter, double-digit sales growth was delivered by the International business yet again, driven by positive like-for-like sales and space growth.
Buyers into the turnaround from the outset, N+1 Singer says that 'the evidence one year in to the programme is increasingly supportive of this stance' and suggests a potential break-even result for the year to March 2015 could see the share price moving beyond 600p. However, with a rally since early June taking the shares through its 450p price target, the broker says 'today's update was always going to be key to determining if the shares had run enough short term. In light of the inference to some gross margin pressure, we think the shares do now need to pause for breath.'
