Mothercare to close more stores as it seeks to raise £32.5m

Baby goods retailer Mothercare is seeking to raise £32.5m from existing shareholders and will increase the number of store closures as it struggles to adapt to challenging conditions on the UK’s high streets.

The capital raising, which is larger than originally planned, will be at 19p a share, well below Friday’s closing level of 28.6p, and the proceeds will be used to reduce debt.

Mothercare’s shares fell 9 per cent in early London trade to 26p. The company said it was “likely there may be short-term impacts on our business operations” from the restructuring, which will result in 60 UK stores closing against an earlier target of 50.

Some of that increase comes from the decision to put its Childrens World subsidiary, which houses 22 of its stores, into administration. Mothercare will transfer 13 Childrens World outlets to other parts of its business.

In May, the group announced a £73m loss for the year to March 24, largely because of restructuring costs, store closures and expensive leases.

The restructuring will help generate £10m in savings a year, the company said. It is seeking to find another £9m of annual savings through a root and branch review of the business. Entering a company voluntary arrangement with landlords and other unsecured creditors allows Mothercare to accelerate the pace of store closures. “It basically means we can do three years’ work in a year,” said chief executive Mark Newton-Jones.

The company is one of several retailers to have struck CVAs, which are resented by many landlords, and close stores. Other companies to have taken this route include floor coverings specialist Carpetright, department store operator House of Fraser, and fast-fashion chain New Look.

Mr Newton-Jones, who was reappointed to the top job at Mothercare in May, a month after the retailer abruptly ousted him, said he expected market conditions to remain challenging, with customers trading down to cheaper options for products such as pushchairs and car seats.

But he added that medium-term prospects were better: “Our customer base is very unusual, in that there is a new generation of shoppers coming through each year.” Around four-fifths of expectant parents visit a Mothercare store or the group’s website.

John Stevenson, equity analyst at Peel Hunt, said Mothercare differed from some other high street casualties in that it had a profitable and cash-generative overseas business, which accounted for two-thirds of group revenue and all of the operating profit. “They just need to get the UK stores back to break-even,” he said, adding that sales per square foot were low while rents as a proportion of revenue were above average.

One key metric will be the proportion of sales that transfer from the closed stores, either to retained premises or to the website.

“Ten years ago we had 425 stores in the UK. Just in my time here [from 2014] we have closed over 100 but seen very little drop in total sales,” said Mr Newton-Jones. “But this time we are going much faster.” By the end of its 2021 fiscal year, Mothercare will operate just 73 UK stores, located mostly in retail parks rather than town centres and offering services such as ultrasound scans and maternity bra fittings.

The fundraising, which will see important shareholders such as DC Thomson and the investment vehicle of former Evolution chief executive Richard Griffiths maintain their holdings, is still subject to shareholder approval. Without their assent, the group warned it could enter administration by October.


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