Mothercare swings to loss amid subdued gross sales within the Middle East

Mothercare has fallen to a first-half loss after challenging conditions hit revenues in its Middle Eastern markets.

The children’s products retailer reported a £1.8million pre-tax loss for the 26 weeks ending 28 September, against a £1.7million profit over the comparable period last year.

Retail sales by its franchise partners declined 12 per cent to £121.2million, which the firm said was due to inventory destocking and ‘continuing uncertainty’ across the Middle East.

Last year, the Watford-based group blamed recent legal and financial changes, combined with the introduction of new leisure activities in the region, on creating greater competition for consumers’ money.

Since then, Mothercare has been expanding its presence in South Asia, recently striking a joint venture deal with fashion store operator Reliance Brands, whose parent company, Reliance Industries, is India’s largest private sector corporation.

Under the arrangement, Reliance paid £16million to Mothercare in return for a 51 per cent stake in the brand’s intellectual property rights across India, Bhutan, Bangladesh, Sri Lanka and Nepal.

Mothercare has used some of the transaction’s proceeds to refinance its debts with investment bank Gordon Brothers, with whom it had a £19.5million term loan.

It has replaced this with an £8million two-year loan facility charging a 4.8 per cent annual interest rate and warrants allowing Gordon to buy up to 43.4 million Mothercare shares for 8.5 pence each.

Clive Whiley, chairman of Mothercare, said: ‘We have immediately utilised this new India joint venture and refinancing as a springboard for a de-leveraged Mothercare to explore the full bandwidth of growth opportunities.’

Since Whiley joined the firm in April 2018, Mothercare has endured a tumultuous time owing to pandemic-related restrictions, heavy competition from supermarkets and online retailers, and Russia’s full-scale invasion of Ukraine.

It closed all British stores and cut thousands of jobs in early 2020, soon after its UK arm fell into administration.

While trading somewhat rebounded, the group suffered another massive blow two years later when it decided to exit the Russian market, which had provided around 20 to 25 per cent of its total sales.

Having gone without a chief executive for three years, Mothercare hired Abercrombie & Fitch’s Daniel Le Vesconte in January 2023 to try and turn things around.

But Le Vesconte departed just five months later, with Whiley and chief financial officer Andrew Cook taking over CEO duties.

Whiley further told investors on Monday: ‘We are now focused upon restoring critical mass alongside delivering our remaining core objectives.

‘This is an exciting prospect for all our partners, colleagues and stakeholders as we can finally leave behind the turmoil of recent years that Mothercare has successfully come through.’

Mothercare shares were 3.6 per cent lower at 4p on late Monday afternoon, meaning their value has shrunk by around 41 per cent this year.