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Mothercare predicts profitable future as it continues its transformation into a brand

As a brand

Mothercare says it expects to make a small profit this year as it continues to reshape the way it does business. However, its brand sales are likely to be 40% down on the previous year as a result of the impact of Covid. 

The one-time leading UK and International retailer of children’s clothing and nursery equipment is now a brand with a goal of becoming an asset light business – in which its franchise partners pay its manufacturing partners directly. That removes Mothercare’s exposure to debt and working capital requirements – leaving it primarily with responsibility for design, quality control and the choice of which manufacturers to use. 

Mothercare says that already for the autumn/winter 2021 season, around 70% of the products it designs, by value, will ship straight from the country where they are made directly to its franchise partners without ever passing through its own warehouses. More than half (55%) of products, by value, are invoiced directly to the franchisees by its manufacturing partners. By the end of this financial year it aims to raise the proportion of goods being shipped direct to franchisees to 80%. It has reassigned the lease of its former national distribution centre in Daventry, taking a £3m risk off its books. 

Following an in-depth customer survey it now plans to produce products that meet the expectations of end customers in international markets, moving away from a history of designing primarily for the UK market. It is also introducing a new ERP system to provide easier and more efficient access to information and to reduce its IT costs. 

In a pre-close trading update today it says worldwide sales will come in at £326m in the year to February 27, 40% lower than the previous year. That, it says, reflects the impact of Covid-19 on the markets that its franchisees operate in around the world. It expects to report a small EBITDA profit, before one-off costs, for the year, and says net debt is now down to £12.1m. Some 80% of its franchisees’ shops are now open and, based on the expectation of continuing but reducing disruption from the pandemic, it now expects Mothercare to return to profit in the short to medium term. Looking ahead, it expects to make annual operating profits of about £15m as its retail franchise operations return to normal in future years. 

Mothercare chairman Clive Whiley says in today’s statement: “Our performance in 2021 shows that whilst we are not immune to the impact of the pandemic on our franchise partners’ operations around the world, we have ended the year in a far stronger position than we started it. Our resilient performance and financial position bears out the robustness of the Mothercare business today, delivering what will be a positive if modest EBITDA result for the year. We enter FY22 as a conservatively financed, cash generative and profitable business. 

“We expect 2022 to be a year of further progress and we can now focus upon developing our strategy and future plans to optimise the competencies and attributes of Mothercare over the next five years. That is an exciting prospect for all of our staff and stakeholders as we hopefully exit this most uncertain of times.” 

When Mothercare put its UK retail arm into administration, in December 2019, the company said it had failed as a retailer because its UK stores were not financially viable in a discount-driven market

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