Mothercare (MTC) have announced that its two UK operating subsidiaries are going into administration. The company services over 1,000 stores worldwide, and apart from the UK they report a profit. But losses in the UK more than offset profits in the rest of the world if you read the last annual report. The share price has fallen 30% today at the time of writing.
There were clear warning signs here. For example this is what it says in the Annual Report published in May under “What went wrong” after mentioning “an acceleration of events”: “the difficult situation was further fuelled by a fracture in the relationship between the non-executive and operating executives, a break-down in trust with key shareholders and the appointment of an array of increasingly expensive professional advisers”. That’s a very unusual thing to actually say to shareholders! It hardly inspires confidence does it.
It is also noticeable that even if overseas sales were profitable, there were declines in like-for-like sales both there and in the UK. And needless to point out perhaps that this is one company that is most likely to have been affected by changing shopping habits. Do mothers with children or young babies really want to be dragging them around the High Street? No they will order what they need on-line. A quick look at the Mothercare web site says they do offer free delivery on orders over £50 but why bother when other on-line sites will do it for much less.
Mothercare has always had a great “brand” but has never seemed able to turn it into a profitable business – at least in the UK.
Note that only the UK operations have gone into administration but it’s difficult to see how the parent holding company is going to avoid major problems as a result as debts are probably secured against all the assets and there may be substantial intercompany debts. And what about the pension scheme and the sale and leaseback of the head office which means future costs? I have not researched the company enough to advise further but almost everything I read in the Annual Report puts me off the business.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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