Shares sink as Mothercare warns over profit and begins talks with lenders
The firm is working with its lenders as it seeks ‘waivers of certain financial covenants’.
Shares in Mothercare collapsed on Friday after the baby retailer warned that profits would disappoint and revealed it has opened crunch talks with its lenders.
The company, which only issued a profit warning in January following dismal Christmas trading, said it expects adjusted pre-tax profit to come in at the lower end of the £1 million to £5 million range it had previously guided.
Mothercare is also working with its lenders as it seeks “waivers of certain financial covenants”.
The group said in a statement: “Reflecting the more challenging trading environment and our seasonal cash flows, we are working with our financing partners with respect to our financing needs for 2019 and beyond.
“We forecast our borrowings to increase towards the limit of our total committed and non-committed facilities at various points from the start of the new financial year, and will therefore require waivers of certain financial covenants.”
Shares tanked over 14% to 21p in afternoon trading as the retailer also said it is exploring “additional sources of financing” to support its transformation programme.
Chief executive Mark Newton-Jones is attempting to turn the business around and has embarked on a radical store closure programme.
Mothercare has been working to slim down the total number of UK stores to between 80 and 100 from 143, having shuttered several locations over the past year as part of those plans.
“As previously announced and as part of our transformation strategy we have taken decisive action to reduce our central cost base. The business is also continuing with its planned strategy of reducing the UK store estate whilst increasing digital capabilities.
“A further announcement will be made in due course,” the retailer added.
The announcement comes in a horror show week for the retail sector, with Toys R Us and Maplin collapsing into administration on Wednesday, impacting over 5,000 jobs.
Prezzo and New Look are also poised to shut stores through Company Voluntary Arrangements, following similar moves by Jamie’s Italian and burger chain Byron earlier this year.
Retailers across the board have been hammered by weak consumer confidence off the back of soaring Brexit-fuelled inflation.
Mr Newton-Jones said: “The retail sector continues to face a number of pressures that are clearly having a profound impact on the sector as a whole.
“Against this backdrop we are performing in line with our expectations and remain a cash generative business, but we also need to push ahead with our transformation strategy to meet our customers’ needs and continue adapting to evolving shopping habits around the world.
“We are working together with all our stakeholders, including colleagues, franchisees, financiers, suppliers and pensions trustees on this next phase of our transformation and their part in delivering these plans.
“Despite the challenges, there remains a clear way forward for Mothercare to realise its ambition to be the leading global retailer for parents and young children.”