Mothercare issues profit warning after plummeting Christmas sales

Royal models in Mothercare store

Mothercare plc, the leading global retailer for parents and young children, has recorded 7.2 per cent decline in the United Kingdom like-for-like sales for 12 weeks to December 30, 2017.

Total sales were down 11% year-on-year after store closures, and gross margins also fell due to higher discounting.

Debenhams said last week it was considering closing more stores as it revealed like-for-like United Kingdom sales fell 2.6% in the 17 weeks to 30 December amid a "volatile and competitive" market.

Newton-Jones added that "going forward, we are not anticipating any improvement in the short-term market conditions for the United Kingdom".

He said that the company made a "conscious" decision during the period to keep products at full price in a bid to "protect" its brand position ahead of Christmas, discounting more heavily in the end of season sale.

"Going forward, we are not anticipating any improvement in the short-term market conditions for the United Kingdom and on this basis the adjusted group profit for the year is likely to be in the range of £1 to £5m", said Newton-Jones.

Mothercare's troubles have also been compounded by a slowing global business - which runs 1,300 stores across more than 50 countries - mainly due to currency swings and weaker demand from oil-producing countries. Online sales, which now represent around 42% of total sales, fell 6.9%.

He added that customers were waiting until promotional periods to shop.

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The company reported a 7.2 per cent fall in United Kingdom like-for-like sales - those at stores open for a year or more - in the 12 weeks to December 30.

Debenhams responded by increasing promotional activity, resulting in gross margins being expected to be 150 basis points down for the recent half year compared to a year prior.

Since taking the helm three years ago, Newton-Jones has closed 100 loss-making United Kingdom outlets and modernised 70 per cent of the remaining stores.

Fiscal 2019 profit before tax is tipped by Peel Hunt to be £5.2mln.

"Whilst this is positive news, it is too early to say whether or not this is the beginning of a more sustained up-turn in sales across the region", Newton-Jones said.

"The group's shares have reflected and, we sense, anticipated challenges albeit we also believe that the market supports Mark Newton-Jones' strategy to transform a business with strong heritage, credentials and capabilities for the better in the long-term".

Last week, store group Debenhams (DEB.L) slashed its annual profit forecast after it cut prices to drive sales during Christmas, amid a decline in demand for clothing and pressure on consumer spending. Last week, department store chain after reporting disappointing Christmas trading.