Apr 1, 2011
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Mothercare warns on profit as mums count pennies

Apr 1, 2011

Mar 31 - Mother and baby products firm Mothercare joined the ranks of store groups warning on the trading outlook as cash-strapped Britons start scrimping on spending for their children.


Historically consumers have been reluctant to reduce spending on their offspring even when they are cutting back in other areas. But as they grapple with the government's fiscal squeeze habits are changing.

Britons have been economising on food, traditionally the most resilient area of spending, and Thomas Cook, Europe's No. 2 travel company, said Tuesday they also were cutting back on foreign holidays.

Shares in Mothercare, which trades from 373 stores in the UK, were down 8.6 percent at 0909 GMT after the firm warned it expected profit from its UK retail operations to remain under "significant pressure" in 2011/12.

Prior to Thursday its shares had lost over a quarter of their value in the last three months.

The group, which issued a profit alert in January, said it expected continuing weak demand after sales at UK stores open over a year fell 2.4 percent in the 12 weeks to March 26, its fiscal fourth quarter.

Mothercare also forecast gross margin for the 2010-11 year would be down 2.5 percent, 0.5 percent lower than previous guidance, reflecting price cuts to clear autumn/winter stocks.

It will target cost savings to offset input cost pressures on gross margin and look for benefits from its property strategy in addition to the 10 million pounds ($16.06 million) already identified.

"Currently in the UK we have very poor consumer demand... Footfall is much lower and as a result competition is more aggressive," chief executive Ben Gordon told reporters.

"We expect consensus (pretax profit) forecasts for 2010-2011 to be cut again, probably below 30 million pounds, and with only a small uplift likely in 2011-12," said analysts at Investec.

Consumers look increasingly unwilling to spend as muted earnings growth and higher inflation, fuelled by January's rise in VAT (sales tax) and higher oil and food prices, bite into real incomes.

They are also worried about job losses and welfare reductions related to government spending cuts, as well as the prospect of higher interest rates.

Dixons, Britain's No. 1 electricals retailer, and Home Retail, have both issued profit warnings this month.

Separately Thursday a survey said British consumer confidence stagnated in March.
Mothercare's UK woes overshadowed continued strong growth overseas, where franchisee retail sales increased 10.0 percent in the fourth quarter.

The firm said it expected the 894-store international division to continue its rapid growth with at least 150 new stores opening in 2011-12.

By James Davey
(Editing by Mark Potter and Mike Nesbit)

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