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Mothercare puts 800 jobs at risk with store closure plans as it reinstates ousted boss

Ben Woods
Mothercare

Mothercare has reinstated its ousted chief executive and put 800 jobs at risk through plans to axe 50 stores, as the troubled baby chain outlined a far-reaching rescue package.

The retailer will bring Mark Newton-Jones - who was sacked in April - back into the fold as chief executive, while accelerating its store closure programme and pulling together £113.5m of funds to revive the business in a major refinancing.

Efforts to bring down its 137-strong UK store estate to around 87 stores and secure rent reductions on a further 21 sites will be pursued through a Company Voluntary Arrangement (CVA), a type of insolvency process which helps firms that are under fire to survive by curtailing their costs.

The business also confirmed plans previously revealed in The Telegraph to tap shareholders for £28m through an equity issue to be launched in July this year.

It also received financial breathing space by extending its debt facility to £67.5m, pinning down £8m of new shareholder loans and signing off a £10m debt-backed facility with a trade partner.

Investors cheered the overhaul strategy, sending shares soaring 24pc to 26.3p, handing Mothercare a market capitalisation of £36.4m.

Executive chairman Clive Whiley said the measures would give Mothercare a “solid position” in which to shore up its fortunes after a legacy of loss-making stores created an unsustainable situation for the retailer.

He said: “These comprehensive measures provide a renewed and stable financial structure for the business and will drive a step change in Mothercare’s transformation.

“The potential for the Mothercare brand in the UK, benefitting from a restructured store estate, and internationally remains significant.”

The appointment of Mr Whiley as interim executive chairman last month cleared the way for Mr Newton-Jones to make a shock return to the business.

It is understood that Mr Whiley’s predecessor, Alan Parker, had a key role in the firm’s decision to lay off Mr Newton-Jones, who had spent close to four years attempting to turn the business around.

The shake-up means David Wood will step aside from the chief executive position in order to take up a new role as group managing director of the firm.

The turnaround plan came as Mothercare laid bare a dismal set of results, with weak consumer confidence and rising costs hitting online traffic and store footfall.

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Mothercare’s UK like-for-like sales dropped by 1.3pc for the year to March 24, as losses before tax on home soil ballooned to £79.4m, in contrast to a loss of £9.7m for the year before.

Focusing on the wider group, adjusted pre-tax profits crashed 88.3pc to £2.3m as worldwide sales fell by 4.8pc to £1.16bn.

Mr Wood said the business had enjoyed a positive start to the year, but the UK market softened from September onwards.

He added: “Against this difficult backdrop, the business managed its cash tightly and delivered lower net debt than our January guidance. However, profit is significantly lower than in the previous year.

“The business has modernised significantly over recent years, but we expect the changing dynamics and challenges in the retail sector to continue, so we need to move faster with the execution of our transformation plans.”

Hikes to the National Living Wage, inflation and rising taxes sparked by last year’s business rates revaluation have added to the pressure on retailers' margins.

Mothercare's decision to seek a CVA sees it join a string of high street strugglers targeting a revival through the process, including department store chain House of Fraser.

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Simon Underwood, partner at accountancy firm, Menzies LLP, said: “Retailers considering a CVA should also be aware that it is not always possible to save the business from entering into administration and total closure, as happened in the case of Toys R Us [which went into administration].

“Increased competition in the mother and baby products sector, high property rates and a failure to improve online sales have all contributed to Mothercare’s financial difficulties.”