Mothercare Shares Plunge Most Since 2011 After Profit Warning

Mothercare Plc fell the most in more than two years after becoming the latest U.K. retailer to fall foul of reduced shopper numbers and increased discounting over the Christmas holiday.

Full-year profit will probably miss the range of analyst estimates, Watford, England-based Mothercare said today, adding that it remains cautious about the outlook for consumer spending for the rest of the year. The babywear vendor’s shares fell as much as 32 percent to 286.5 pence.

Mothercare joins Debenhams Plc among the losers over Christmas, as people delayed shopping until the last minute to gain discounts. Department-store chain Debenhams forecast a profit slide because of weak business in the period. Others such as clothing chain Next Plc reported stronger sales as consumers rewarded those with strong multi-channel platforms and disciplined pricing.

Mothercare’s “drop in like-for-like sales and gross margins in the third quarter was significantly worse than we had expected,” JPMorgan analysts including Alexander Mees said today in a note, cutting their recommendation on the stock to neutral from overweight, with a price target of 335 pence. “We no longer think it likely that Mothercare will restore its U.K. business to profitability by 2016.”

The shares fell 28 percent to 302 pence at 11:55 a.m., making it the biggest decliner in the FTSE All-Share Index. The shares have declined 12 percent in a year, giving the company a market value of 268 million pounds ($440 million).

International Sales

Mothercare’s sales dropped 6.1 percent in the three months to Jan. 4, as revenue in the U.K., its largest market, declined 9.9 percent. The company closed 18 unprofitable stores in the first half in the U.K., where retailers have struggled to attract customers as wages fail to keep up with inflation.

International sales, which accounted for more than a third of the total in the first half, were hurt by unseasonal weather in the most recent quarter in larger markets such as Russia and the Middle East, as well as currency deflation, Mothercare said.

The company operated through more than 1,400 stores at the end of the quarter, according to today’s statement.

JPMorgan reduced its estimate for Mothercare’s full-year pretax profit to 8.1 million pounds from 16.5 million pounds.

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