Mothercare profit warning raises banking covenant concerns

Mothercare has previously warned of a softening in the UK market

"Going forward, we are not anticipating any improvement in the short-term market conditions for the United Kingdom and on this basis the adjusted group profit for the year is likely to be in the range of £1m and £5m".

Mothercare PLC saw its shares slide by a quarter on Monday after the parent and young children-focused retailer said it expects profit for its financial year to fall after a disappointing Christmas, with United Kingdom trading particularly weak both on the high street and online.

The company reported a 7.2 per cent fall in United Kingdom like-for-like sales - those at stores open for a year or more - in the 12 weeks to December 30.

The chain said United Kingdom like-for-like sales had slumped by 7.2 per cent in the 12 weeks to December 30, with online sales falling 6.9 per cent. Online sales make up 42 per cent of its total United Kingdom sales, with two-fifths of digital sales coming from iPad purchases made in store.

Debenhams said last week it was considering closing more stores as it revealed like-for-like United Kingdom sales fell 2.6% in the 17 weeks to 30 December amid a "volatile and competitive" market.

Shares in Mothercare tumbled more than 25% this morning as the United Kingdom mother, baby and children's goods retailer issued a profit warning on the back of a sales slump over the key Christmas trading period.

Like-for-like sales are those from stores that have been open at least a year.

Aldi UK, the British arm of the German discount supermarket chain, said its sales rose over 15 percent in December year-on-year, a record Christmas performance that was driven by strong demand for its premium ranges.

Global online sales were up 8.5% in constant currency and 7.4% in actual currency.

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On a constant currency basis, worldwide sales fell by 3pc, while sales were down nearly 7pc in actual currency.

Neil Wilson, senior market analyst at ETX Capital, said: "We should look to management's decision not to discount in the peak trading season as a significant contributing factor".

"Taking this approach into account we expect net debt at year-end of about GBP50m and at this level we have sufficient liquidity and covenant headroom within our existing facilities".

However, over the Christmas period, prompting the fashion retailer to raise its profit forecast.

She adds: "The parent and child specialist is now in the second phase of its transformation plan as it shifts to become a more digitally-led retailer".

The retailer said online sales now represented about 42% of its total United Kingdom sales.

Meanwhile, Mills says that with further store closures on the cards, total United Kingdom sales will continue to decline.

"Whilst this [return to growth in the Middle East] is positive news, it is too early to say whether or not this is the beginning of a more sustained upturn in sales across the region", Mr Newton-Jones said. "Moreover, it must utilise its stores to support the online channel and to differentiate itself from online competitors Amazon, PreciousLittleOne and Tesco Direct".

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