Mothercare (MTC) shares jump 20% despite falling sales

Results come a day later than expected, with the figures being called 'disastrous'

Article updated: 24 May 2019 11:00am Author: Helal Miah

  • Widespread restructuring and cost reduction seen as a positive by investors
  • Large number of store closures and current economic environment impact on sales
  • Even with better financial structure and boost in share price investors should cut their losses and sell

Mothercare released full year figures a day late due to its “complex” financial situation and it seems to be worth the wait as the shares jumped around 20% at the open. However, this positive sentiment is focussed on the restructuring the group has gone through rather than sales. Like for like sales fell 8.9%, a disastrous figure for any retailer. Management blamed reduced confidence in the brand along with the wider macro-economic uncertainties. With the store portfolio reduced from 134 to 79, total UK sales fell by 11.8%.

Store closures and internal restructuring coupled with the sale of the Early Learning Centre and sale and leaseback of their Watford Head Office has enabled them to reduce the debt burden from £44.1mn to £6.9mn. Total adjusted loss before taxation to be £11.6mn, much lower than expected which is why the share price has reacted well this morning.

Our view: the shares are not going to get near £2.50, last seen in 2015. Even with a better financial structure, troubles will resurface simply because of the state of the UK retail environment. Investors should treat today’s rise as a temporary reprieve and cut their losses.

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Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.