Mothercare is making a loss due to weak sales in the Middle East
- Mothercare reported a pre-tax loss of £1.8 million for the 26 weeks ending September 28
- Retail sales of the company’s franchise partners fell 12% to £121.2 million
Mothercare turned loss-making in the first half of the year after challenging conditions hit sales in the Middle East markets.
The children’s goods retailer reported a pre-tax loss of £1.8 million for the 26 weeks ending September 28, compared with a profit of £1.7 million for the comparable period last year.
Retail sales from its franchise partners fell 12 per cent to £121.2m, which the company said was due to destocking and ‘ongoing uncertainty’ in the Middle East.
Last year the Watford-based group blamed recent legal and financial changes, combined with the introduction of new leisure activities in the region, for creating greater competition for consumers’ money.
Since then, Mothercare has expanded its presence in South Asia and recently entered into a joint venture with fashion retail operator Reliance Brands, whose parent company, Reliance Industries, is India’s largest private sector company.
Under the arrangement, Reliance paid £16 million to Mothercare in return for a 51 percent stake in the brand’s intellectual property rights in India, Bhutan, Bangladesh, Sri Lanka and Nepal.
Tough backdrop: Children’s products retailer Mothercare falls in first half after challenging conditions hit sales in the Middle East market
Mothercare used some of the proceeds from the transaction to refinance its debt with investment bank Gordon Brothers, with whom it had a £19.5 million term loan.
It has replaced this with a two-year £8m loan at 4.8 per cent annual interest and options for Gordon Brothers to buy up to £3.7m worth of shares.
Clive Whiley, Chairman of Mothercare, said: ‘We immediately used this new Indian joint venture and refinancing as a springboard to deleverage Mothercare to explore the full range of growth opportunities.’
Since Whiley joined the company in April 2018, Mothercare has endured a tumultuous time due to pandemic-related restrictions, stiff competition from supermarkets and online retailers, and the large-scale Russian invasion of Ukraine.
It closed all UK stores and cut thousands of jobs in early 2020, shortly after the UK arm fell under government control.
While trade recovered somewhat, the group suffered another huge blow two years later when it decided to exit the Russian market, which had generated around 20 to 25 percent of its total sales.
After three years without a CEO, Mothercare hired Daniel Le Vesconte from Abercrombie & Fitch in January 2023 to try to turn things around.
But Le Vesconte left just five months later, with Whiley and chief financial officer Andrew Cook taking over as CEO.
Whiley further told investors on Monday: ‘We are now focused on restoring critical mass in addition to delivering on our remaining core objectives.
“This is an exciting prospect for all our partners, colleagues and stakeholders as we can finally put behind us the turmoil of recent years that Mothercare has successfully navigated.”
Mother care shares were down 3.6 percent at 4 p.m. on Monday afternoon, meaning their value has shrunk by about 41 percent this year.
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