Mothercare Plummets in Latest U.K. Retail Christmas Disaster

(Bloomberg) -- Mothercare Plc reported a sharp drop in U.K. sales over the holiday season, underlining the depths of the country's retail crisis as store owners wrestle with higher costs and shrinking disposable incomes.

Like-for-like sales in the U.K. declined 7.2 percent in the 12 weeks through Dec. 30, the childrenswear retailer said in a statement Monday. Gross margins are also set to fall due to higher levels of discounting required to reduce stock in post-Christmas sales, the company said. The shares plummeted as much as 32 percent, the biggest intraday decline on record.

Mothercare is far from alone in its woes. The Brexit-induced weakness of the pound and increases in the minimum wage have inflated U.K. retailers' costs, and poor Christmas sales are bringing these issues to a head. Debenhams Plc warned last week that its full-year profit would miss estimates due to weak holiday business, while its department-store rival House of Fraser Ltd. is seeking rent reductions from landlords. A strong report from apparel and home-furnishings chain Next Plc last week stood out against the general gloom.

Mothercare, which has sold inexpensive baby clothes, strollers and nursery furniture since 1961, has lost market share to grocery chains and Amazon.com Inc. in recent years. That's been compounded by a squeeze on disposable incomes.

“When consumers are confident they're going to get a pay rise, then they might splash out on a new pram or car seat, but at the moment they will be more inclined to just buy it secondhand,” TCC Global analyst Bryan Roberts said by phone.

Other children's retailers are feeling the Amazon effect as well. In December, Toys “R” Us Inc. narrowly escaped liquidation in the U.K.

Mothercare expects full-year pretax profit to be between 1 million pounds and 5 million pounds. The average estimate of four analysts surveyed by Bloomberg was for profit of 11.9 million pounds. The retailer expects no short-term improvement in U.K. market conditions, Chief Executive Officer Mark Newton-Jones said in the statement.

Monday's share-price decline has pushed Mothercare's market capitalization down to about 78 million pounds. Given that the company generated 667 million pounds in sales last year, that could catalyze takeover interest, analysts at Shore Capital, the company's corporate broker, wrote in a research report.

Tesco Plc and Marks & Spencer Group Plc are both scheduled to report Christmas results on Thursday.

--With assistance from James Cone

To contact the reporter on this story: Sam Chambers in London at schambers7@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John J. Edwards III, Thomas Mulier

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