Mothercare is parting company with Ben Gordon, its long-standing chief executive, less than a week after a profit warning wiped 42 per cent off its share price in a single day. The warning was prompted by a sharp sales decline in the UK, and people close to the company believe an international replacement is being sought to strengthen the baby goods retailer’s push into more profitable global markets. Analysts are already speculating that a closure of the UK business could form part of the new chief’s turnround plan.
Earlier this year, Mothercare announced plans to close 120 stores in an effort to restructure its UK business, where the specialist faces stiff competition from supermarkets and internet competitors. Following last week’s profit warning, retail analysts expect the UK business to post a £20m operating loss at full-year results, compared to £11m of operating profits last year.
“If they were to seek an international leader, it might suggest that Mothercare is ready to either radically downsize its business in the UK, or possibly throw in the towel altogether,” said Ben Hunt, retail analyst at Oriel Securities.
He estimated it would cost £100m in cash to shut down the UK business, allowing for trading losses and the cost of exiting the group’s remaining property leases. He values the international business at £400m, substantially more than Mothercare’s current market capitalisation of £171m.
Mr Gordon, who has spearheaded the retailer’s international expansion in his nine years at the company, is to step down at November’s interim results “by mutual consent”. The shares rebounded following Tuesday’s announcement that the search for a new chief executive was to begin “immediately,” and were 9.3 per cent ahead at 210.4p in afternoon trading..
The executive board will report directly to Alan Parker, Mothercare’s chairman, in the interim. The retailer, which celebrated its 50th anniversary with a glitzy party in London’s Canary Wharf last month, has had a tough year. At Christmas, aggressive pricing from supermarkets undercut margins in its key toy category. The current sales weakness has stemmed from its home and travel business, which sells pushchairs and car seats, and accounts for a third of all sales. “High-end push chairs and car seats are branded goods, and people can buy cheaper on the internet, or from the supermarkets,” said Mr Hunt.
The Mothercare brand has translated well to emerging markets, where supermarket and online competition is not as sophisticated, but the rapid drop-off in sales the UK has experienced is a future concern for its franchisees.