Mothercare shares soar 23% as boss lays out three-year cost-cutting gameplan

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Mothercare shares soar 23% as boss lays out three-year cost-cutting gameplan to put UK stores back in profitBy and Published: 06:44 EDT, 24 May 2012 | Updated: 11:56 EDT, 24 May 2012 Shares in Mothercare soared more than 23 per cent today as investors welcomed its new boss’s turnaround plan to make the struggling High Street chain profitable again within three years. The stock rose 38.75 p to 203.25p after Simon Calver, who joined Mothercare in April from internet movie rental firm Lovefilm, pledged to be ‘ruthless’ on costs. And he confirmed plans to slash UK store numbers from 311 to 200 by 2015 in a bid to save £13million a year.

 Trading outlook: Mothercare expects the consumer environment to remain difficult in the UK The chain will be made up of 95 out-of-town sites and 105 high street locations and will focus on profitable outlets, while head-office payroll costs will be cut by 16 per cent. Mothercare has secured a refinancing deal with its banks HSBC and Barclays to fund the store reduction programme, increasing lending from £80million to £90million. More… Calver is also expected to bring his online experience to the business after Mothercare launched its new UK website on May 1. He said: ‘We have a long way to go, and the plan to bring the UK business back to acceptable levels of profitability will take three years.' Shares in Mothercare were up 18 per cent or 29.5p at 194p in mid-morning trading on hopes the turnaround plan would bear fruit. However, Mothercare has already come under fire from small suppliers who are furious at moves to slash their payments in an attempt to cut costs. The Mail reported that Mothercare was forcing suppliers to take a 7.5 per cent cut on their sales to Mothercare at a time when many small firms are themselves struggling to stay afloat. And the uphill challenge faced by Calver was underlined today as a dismal UK performance dragged the parenting retailer deeply into the red. The group saw UK like-for-like sales tumble 6.2 per cent in the year to March 31.

A £55million writedown on the value of the group’s Early Learning Centre and nearly £10million in UK restructuring costs triggered a bottom-line pre-tax loss of £102.9 million, compared with an £8.8million profit the previous year. Fury: Suppliers hit back after Mothercare cuts their payments After stripping out one-off costs such as the writedown on ELC, underlying profits plunged 94 per cent to just £1.6million. The group gained some market share in home and travel in the UK through the year but the rest of the market was ‘particularly weak’. In the UK, Mothercare expects the consumer environment to remain difficult and reassured that it is ‘planning accordingly’. Worldwide network sales grew by 6.4 per cent to £1.2billion, driven by the growth of the international business but tempered by the continued decline seen in the UK. The group’s international arm continued to grow rapidly, with total sales up 18 per cent to £672.4million and underlying operating profits up 27 per cent to £34.9million. As part of its turnaround plan, Mothercare pledged to accelerate international growth through targeting new markets and focusing on key growth regions such as China, India, the Middle East and Latin America. Looking ahead, the group expects international sales to continue to grow in the financial year to next March, with around 150 new store openings and sales growth of around 20 per cent. Outraged suppliers slam ‘discount’ drive Mothercare suppliers have condemned moves to slash their payments as part of the chain’s cost-cutting drive. One supplier, who did not wish to be named for fear of reprisals, said: ‘They have behaved outrageously and put us in an untenable situation.' In a letter seen by the Daily Mail, Mothercare’s executive director Mike Logue wrote: ‘I am writing to inform you that we have reviewed our supplier payment procedures. ‘Consequently, we have agreed that our trade suppliers should provide more favorable (sic) terms.' The letter went on to say that it is slapping a 7.5 per cent ‘settlement discount’ on suppliers from May 18 and added that the number of days it takes to pay them would remain unchanged. Suppliers said Mothercare normally takes 60 days to pay up, compared with 30 a few years ago. Settlement discounts are common in the retail sector.

Originally, suppliers offered them to customers in return for paying promptly. But the supplier said: ‘Big customers are now exerting their muscle to demand a discount even when they are taking longer to pay than before. ‘Their use of the term settlement discount is a complete misnomer.
This is just bashing the supplier. They have been eroding our margins in any way possible for the last few years.' Another furious supplier said: ‘They are making us act as their bank, and now they want us to pay them for the privilege.' A Mothercare spokesman said: ‘As part of the structural and operational review we have taken a closer look at the business, including our supply chain. The changes in supplier terms are part of new better buying initiatives.' View from the City Mothercare’s full-year results came in as expected, according to Matthew McEachran of broker Singer Capital Markets. ’More importantly, positive details have been provided regarding the Transformation & Growth strategy,’ he said. ‘These indicate a better trajectory in most areas than outlined in the Singer “route-map”, especially in relation to the timeframe for achieving “acceptable” UK profits. ’This update is likely to trigger a notable sentiment improvement and Фильмы онлайн lostfilm some meaningful upgrades.' Broker Oriel Securities reiterated its buy recommendation on the stock, and said: ‘A smaller store portfolio with a reduced central cost base should allow Mothercare to invest in the lower prices that will allow it to take the market share it deserves.' Stock trend: Mothercare shares have taken a hammering over the past year
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