Fourth Mothercare alert as sales flop

MOTHERCARE was today forced into a humiliating fourth profits warning in the space of a year after failing to hit sales targets at Christmas. The baby products retailer's underlying British sales fell 1.1% in the 13 weeks to 10 January. Soaring revenues from overseas franchisees and fatter margins were not enough to prevent the shareholder alert.

'Despite the improvement in gross margins, lower-than-forecast sales during this peak trading period will result in a trading outcome for the current year worse than expectations,' it said.

Incoming chief executive Ben Gordon, who was drafted in from the Disney stores chain in December to mastermind a turnaround, said: 'It's absolutely an unacceptable performance for the company.'

Before the latest warning, analysts had expected the group to lose about £6m-£8m in the year to March. That deficit is now likely to balloon to £12m, according to forecasts from house broker Cazenove.

Mothercare shares slumped by 15% to 85p, their worst level for three years, and just a quarter of the value of 18 months ago. The British sales dip compared with over-optimistic internal projections that sales would grow by 3%-4% in the key Christmas quarter. 'Clearly forecasting is an area I'm putting a huge amount of effort into,' said Gordon. At the heart of Mothercare's immediate problems is its new warehouse in Daventry, which has led to a catalogue of logistics and product availability problems. The warehouse is run by Tibbett & Britten.

Gordon is now looking at whether to 'tough it out' at Daventry or move to a more suitable warehouse and today promised a decision by the time of the full-year results in May at the latest. He said he regarded distribution as his most urgent task, but warned it could not be resolved overnight. 'My first act was to hire a logistics expert (Colin Asbury, formerly of Laura Ashley) and put him on the board.'

Outside the core British stores, Mothercare's performance was better. International sales through franchisees grew 30% in the Christmas quarter, while sales through the Mothercare catalogue and website were up 22.1%. Total sales rose 1.6%.

Also encouragingly, Mothercare has cleared most of its autumn/winter ranges and had only modest amounts of unsold stock. The gross margin widened by 3.1 percentage points in the latest quarter.

Gordon declined to comment on whether Mothercare, which is regarded as a perennial bid target, had attracted any recent takeover approaches.