Mothercare to cut 50 stores with 800 job losses
Written by Peter Walker
Mothercare will close 50 of its underperforming stores and bring back recently-fired chief executive Mark Newton-Jones as part of a restructuring plan.
The mother and baby retailer confirmed a company voluntary arrangement (CVA) with store closures which will cause around 800 job losses. In the UK, it employs about 3000 people across 137 stores.
The CVA also specified the return of Newton-Jones, who led the business for four years, but was ousted just 36 days ago, following a profit warning post poor Christmas trading. His replacement, David Wood, will now become Mothercare’s managing director.
Its latest financial results showed a swing from to a a £7.1 million profit in 2017 to a £72.8 million pre-tax loss in the fiscal year ending March 24. On an adjusted basis, the pre-tax profit fell 88.3 per cent year-on-year from £19.7 million down to just £2.3 million, in line with guidance given in January.
Mothercare said this loss came about from restructuring and closure costs, as well as store asset impairments and onerous leases.
Total sales also fell 1.9 per cent to £654.5 million, while net debt was lower at £44.1 million.
A statement also detailed a refinancing package worth up to £113.5 million as part of the CVA. This comprises £28 million of equity capital raising, an extension of existing debt to £67.5 million, along with £18 million in shareholder and trade partner loans.
The process to implement the CVA proposals is expected to complete in July, with the CVA creditor meetings held on 1 June.
“Recent financial performance, impacted in particular by a large number of legacy loss making stores within the UK estate, has resulted in a perilous financial condition for the group,” read the statement. “The financial review concluded that delivering the refinancing and the UK restructuring represent the most viable option to establish a sustainable future for Mothercare.”
Clive Whiley, the company's interim executive chairman, said: “There remains much to do and we must maintain a disciplined focus on cost control and cash generation throughout the business, but these measures provide a solid platform from which to reposition the group and begin to focus on growth, both in the UK and internationally.”
Last month, Mothercare reported UK like-for-like sales decline of 2.8 per cent, impacted by reduced store consumer footfall during the 12-week period to 24 March 2018.
Harsha Wickremasinghe, head of business intelligence at mereger and acquisition advisory firm Livingstone, said is a mix of complacency, lack of decisive action by successive senior management and a miscalculation of the rapidly changing retail environment that has landed Mothercare in this predicament.
“The substantial reduction in Mothercare’s store estate will deliver a much-needed lifeline, but its troubles extend far beyond this,” he stated.
“The intense focus on discounting at the retailer must stop, and much greater prominence given to online. Stores should be used to showcase more exclusive product and staff be retrained to provide genuine advice and guidance to new and new-to-be parents.”