Mothercare upbeat despite Russia, Covid issues
Despite Covid-19 continuing to affect sales and having suspended operations in Russia, one of its key markets, last month, Mothercare remains in a positive mood.
In its trading update Monday, the mother-and-child retail specialist said it expects underlying earnings for the fiscal year ended 26 March to be ahead of market expectations. The year just ended saw “further progress” made in its bid to return to re-Covid levels of sales and was looking forward “with a degree of cautious confidence”.
Last month, Mothercare suspended all business in Russia. Halting trading through 116 stores and the webstore that represent up to 25% of its worldwide sales is expected to hit its bottom line by around £6 million.
But the retailer is predicting EBITDA for the year to 26 March will be in the range of £11.5 million to £12 million, with the company enjoying some one-off benefits worth roughly £1.5 million.
Meanwhile, unaudited net worldwide franchisee retail sales of £385 million were up 7% year-on-year despite being “significantly” affected by Covid-19.
It said retail sales remain below the levels the company would otherwise expect and are around 25% down on the total retail sales for similar territories in the year before the pandemic.
Online retail sales represented 10% of total retail sales, slightly down on the 12% for the previous financial year, reflecting lower levels of Covid-19 restrictions on store openings. But e-tail is still above the levels achieved in the period before the pandemic, it noted.
Another big plus has been the January launch of its upgraded product range for SS22. In its first full season of sales, Mothercare said initial feedback has been “very positive”, although it added that many of our territories still face challenges including ongoing Covid-19 restrictions and the need to clear old inventory from previous seasons as a result of suppressed demand.
“We also appreciate that it may take a number of seasons for consumer confidence to return and thus sales to fully reflect the enhanced ranges. It is therefore difficult at this early stage to project forward and quantify the resultant impact on retail sales”.
But Mothercare chairman Clive Whiley said the upgraded clothing ranges “now offer great choice at a variety of price points, improved design, fashionability, quality and value. We believe this approach will result in clearer differentiation from our international competitors’ offerings.”
Whiley added: “Our updated medium-term guidance for the steady-state operation in more normal circumstances of our continuing franchise operations is that they are capable of exceeding £10 million operating profit on the most prudent basis of excluding any contribution from the Russian business. With encouraging results from our recent efforts on product design we remain focused on accelerating our growth in both existing and new markets.
“As expected, last year was one of further progress for Mothercare, generating free cash flow from operations as a focused, asset-light global franchising business. Whilst we must now deal with the impacts of the suspension of our franchise partner’s operations in Russia, we retain the resilience to deal with this additional challenge satisfactorily.”
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