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Mothercare to Shut Stores After Profit Slump; Shares Jump

May 18 (Bloomberg) -- Mothercare Plc will shut more than a quarter of its U.K. stores and expand overseas after full-year profit fell 72 percent. The stock rose the most in two years.

The retailer of goods for mothers-to-be and children plans to close about 110 shops in the U.K. and cut occupancy costs by 18 million pounds ($29 million) in two years, according to a statement today. The restructuring will leave Mothercare with 170 outlets on town thoroughfares and 102 in out-of-town centers, Chief Executive Officer Ben Gordon said.

“The high street is a less interesting place to be, we are working hard to close our unprofitable stores,” Gordon said in a phone interview. “It’s a relatively tough consumer environment and its going to be challenging in the U.K.”

Mothercare, like other retailers such as Laura Ashley Holdings Plc, has struggled as rising living costs, a slowing economy and job uncertainty hurt consumer spending. Increased clearance in the fourth quarter lead to a 2.5 percent fall in gross margins from the previous year, the company said today.

“Its recognized that’s it tough out there but it’s better to do something than not to,” Andrew Wade, an analyst with Numis Securities Ltd., said by phone. “We are reassured by management and the clear guidance they have given on their strategy for the U.K. and the benefits of the store closures.” Wade recommends buying the stock.

Mothercare shares rose 5.5 percent, the most since May 2009, to 448.50 pence at the 4:30 p.m. close in London trading. The stock has dropped 27 percent this year, giving the company a market value of 397.3 million pounds.

Income Decline

Net income for the 52 weeks ended March 26 fell to 6.5 million pounds, or 7.4 pence a share, from 23.6 million pounds, or 27.3 pence, a year earlier, the company said. Sales grew 3.6 percent to 793.6 million pounds.

U.K. underlying profit from operations shrank to 11.1 million pounds from 36.1 million pounds the previous year. About half of Mothercare’s sales come from the U.K., the CEO said. International sales rose 16.3 percent and overseas sales may grow as much as 20 percent this fiscal year as the company opens 150 new stores.

“The story is international and we expect international to become a bigger component of our business in the years to come,” Gordon said, “Our biggest growth is coming from China, India and the Middle East.”

To contact the reporter on this story: Renee Lawrence in London at rlawrence7@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net

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