MTC

Doom and gloom has been circling the retail sector recently but baby store Mothercare (MTC) has managed to buck the trend with a positive trading update, with full-year sales tipped to be up by more than 35%.

Last week, at a recent charity breakfast, Stuart Rose, Chairman-designate of Marks & Spencer (MKS), bemoaned a lack of confidence among his customers, which he believes could last to the end of 2009. However, several factors have ensured that Mothercare is side-stepping the downturn, with one major factor being continued growth in its international operations. The company opened 77 new franchise stores last year and now operates from 494 outlets in 48 countries.

Matthew McEachran of Kaupthing Singer & Friedlander has increased his 2007/08 profits forecast by £2.4 million to £35 million, based on a belief that its international profits could grow at a compound rate of 25% for the next three years.

In the UK the group has benefited from better margins, reflecting tight stock control, better ranges and increased sales via the net. It is also about to announce two further initiatives, which should lead to still stronger profits growth – the property optimisation programme and the strategy for integrating the Early Learning Centre. There could be a 5%-10% reduction in space usage saving over £5 million, while the integration of ELC could generate synergies of £20 million by 2010/11.

McEachran has a target price of 525p for the shares, some 31% above their current 401.5p level.

Shares says: Mothercare has demonstrated that even in a difficult market niche retailers can prosper.

The writer holds shares in this company

by: John Marshall