Mothercare crawls back into profit
Moving upmarket ends five years of losses
MORE upmarket items including Peter Rabbit knitted dungarees and newborn baby gifts helped Mothercare post its first profit in five years.
Mark Newton-Jones, chief executive of the mother and baby accessories retailer, has been improving products and style to woo more customers. This helped the firm make a £9.7m profit, up from a £13.1m loss last year.
Sales at UK stores open more than a year rose 3.6pc, with total UK sales up 0.3pc to £459.7m for the year to March 26.
Mothercare is two years into an open-ended turnaround plan. NewtonJones said: ‘This business was mass- market and cheap. Competing with supermarkets was the road to ruin.
‘We are now about style, design and quality. We need to be exclusive with better product.’
He has been refurbishing shops and improving the website. Online sales rose 15pc to £159.4m in the UK and around 80pc of its online sales are via smartphones and tablets.
He said 40pc of its stores have now been given a makeover and another 40pc will be done this year.
The improvement in products has meant 20pc of its sales are now considered high- end, compared with less than 10pc before. Newly refurbished shops also include coffee shops and children’s play areas. Newton-Jones said a new range called Smile by Julien Macdonald is its first designer tie-up.
After five years of decline, Mothercare’s margins rose 0.7pc. However group sales fell 4.4pc to £682.3m after a slowdown in many overseas markets. The oil price crash has caused turmoil in the Middle East and shoppers have bought less.
It has also been hit by economic worries in China and Russia. NewtonJones said: ‘Our franchise partners have had difficult times, and performance in the Middle East, China and Russia has knocked our profits back, but it is cyclical and sales will come back.’
He said Mothercare will expand in existing markets and he is also considering new markets such as Iran. Once sanctions have completely ended it may enter Iran with one of its existing Middle Eastern franchise partners.
Nivindya Sharma, an analyst at research group Verdict Retail, said: ‘The efforts to focus on fullprice product and move away from its discount-led strategy, which undermined brand values and perception of quality, has started to bear fruit.
‘It will take time to change the mindset of consumers as years of discounting have devalued its proposition. Mothercare must make exceptional service the cornerstone of its offer, ensuring word-of-mouth referrals and customer loyalty.’
The retailer suffered from profit warnings and its shares plummeted two years ago and it first began a turnaround plan under previous chief executive Simon Calver. In 2014 Calver said: ‘It’s a gradual thing and going to take years to turn around and build our reputation.’
Mothercare’s shares rose 4.2pc, or 5p, to 123.75p.