Mothercare loss widens in pandemic year, stays upbeat despite ongoing volatility

By

Sandra Halliday

Published
Jul 29, 2021

Mothercare’s return to health was interrupted by the pandemic in the latest year, with the company’s results for the 52 to March 27 showing a much wider loss. And the mother-and-baby products specialist even included a ‘going concern’ warning should the trading environment get tougher, despite the chairman also saying “we look to the future with great optimism”.

The company, which has transformed itself into a brand-owning business that franchises out its retail operations, said it saw a statutory loss of £21.5 million for the year, much bigger than the £8.5 million of a year ago. Revenue came in at £85.8 million, down sharply from £164.7 million a year earlier as Covid took its toll on its operations.

And it added that “there is a material uncertainty that casts significant doubt that the group will be able to operate as a going concern” due to the ongoing effects of the pandemic.

That said, the going concern issue depends on a lot of ‘ifs’ and would only arise “if trading conditions were to deteriorate” beyond what it has modelled for, and if it couldn’t “execute further cost or cash management programmes”. That could mean that it would “at certain points of the working capital cycle have insufficient cash and would need to renegotiate with its lender.

Whether that warning is any more than a statutory obligation or a likelihood remains to be seen. But the company was generally upbeat in its results report.

It said the latest year saw a “successful transformation to create a strong platform for growth” and it transitioned the business “to provide a sustainable, operationally efficient, capital-light platform for growth focused on brand management and the design, development and sourcing of product to support international franchise partners in over 700 stores across 37 countries”.

In the UK, one important move was establishing Boots as its local franchise partner, with the Mothercare brand becoming available in Boots stores and online from Autumn 2020.

The business also said it sees “strong opportunities for growth in new territories [as] Mothercare is still not represented in seven of the top 10 baby markets in the world”.

And it’s looking forward to woking on the “extension of brand reach… as we explore the opportunities available to us in wholesale, licensing and online marketplaces”.

Looking at current trading, it estimates that over 80% of its partners' global retail locations are now open. But trade “continues to be challenging in the key markets of Russia, India, Indonesia and Malaysia due to the continuing impact of Covid-19 on footfall and consumer confidence”.

Yet based on “reducing impacts on us and our franchise partners' operations as the current year progresses and the implementation of the new operating model, greatly reduced cost structures and the elimination of significant legacy issues, we expect a significant improvement in operating profits for the current year”.

In the first 13 weeks the new financial year, its franchise partners, “many of whom continue to be affected by Covid-19 lockdowns”, recorded total retail sales of £94 million, generating an adjusted EBITDA of approximately £2.5 million.

Chairman Clive Whiley said: “The past financial year has clearly been a challenging one, however, despite the backdrop of the pandemic, we have made a tremendous amount of progress in fundamentally transforming the group.

“We expect 2022 to be a year of further progress as we focus upon developing our strategy and future plans to optimise the Mothercare brand globally over the next five years. These are exciting times as, notwithstanding the continued impact of the pandemic in many of our franchise partners’ territories, without the distractions of the last three years we are seeking to accelerate the growth of the business and the Mothercare brand. We look to the future with great optimism having established a strong and efficient platform with multiple opportunities for growth.”