Mothercare impresses as upmarket move yields first UK growth in years

LONDON (ShareCast) - Shares (Berlin: DI6.BE - news) in Mothercare (LSE: MTC.L - news) moved higher after the retailer issued a solid fourth-quarter update, with UK sales returning to quarterly growth for the first time in several years. Against a weather-affected backdrop in the UK, worldwide sales grew 4.1%, with the UK delivering a 1.5% sales increase in the 11 weeks to 28 March.

International sales grew 11.4% at constant currency, moderately slower than in the previous quarter, despite challenging global economic conditions and currency headwinds, which are expected to continue to weigh.

The infant clothing and toy retailer said the UK was beginning to see some benefit from initiatives it had taken over the year, with UK like-for-like sales growth of 5.1% despite the challenge for clothing retailers from the cold spring weather.

As well as shutting loss-making stores and refitting and modernising other parts of the business, Mothercare has looked to improve product and services and reduce the level of promotional activity.

"The final quarter is in line with our plan," said chief executive Mark Newton-Jones.

"In the UK our strategy of reducing promotional and discount activity and returning to being a full price retailer has continued to stabilise margin.

"By restricting discount periods we produced a stronger end of season sale with improved sell through rates as a result." He said underlying international businesses remained robust but that sales had been more affected by "economic pressures".

"Over the last year, we have made good progress with our strategic plan. It is still early days in our turnaround, but we are putting the foundations in place by modernising and investing in our business." Broker Numis said the results were further confirmation of the more pragmatic retailing approach, with further benefits likely to accrue from the store refit and infrastructure modernisation programmes.

"We expect a significant reduction in the UK operating loss over the next few years, allowing investors to focus on the successful international business."