Mothercare Group back in the black as UK losses narrow

Mothercare UK losses have narrowed. Photograph: Paul Faith/PA

Mothercare has narrowed losses from its UK stores and said it was seeing signs of improvement from its turnaround plan.

The mums-to-be and baby retailer, which has a presence in 60 countries but still earns more than one third of its revenue in the UK, has swung back into profit on the back of strong demand in Asia and the Middle East.

The UK business continues to to be a drag on performance, but losses narrowed to £13.5m, compared with £14.9m last year. But the overall Mothercare group reported pre-tax profits of £5.5m in the six months to the 11 October, compared with an £11m loss last year.

Mothercare said it was encouraging that UK like-for-like sales rose 1.5% on last year. It has scaled back discounts and special offers. Online sales were up 14% and now account for one quarter of all UK sales.

The retailer has closed 14 loss-making stores over the period, under a turnaround plan instigated by chief executive Mark Newton-Jones, who became interim boss in March and was confirmed in July.

Newton-Jones wants the chain to shed its old-fashioned image and insists it has a future in the UK, where it has struggled to compete with cheaper baby clothes offered by supermarkets and more upmarket offerings from department stores.

Under his plan, Mothercare plans to introduce more high quality goods to encourage consumers to buy more products at full price. Shops are being given a makeover, with iPads and interactive screens introduced to stores, so customers can read online reviews and view demonstration videos. The company announced in September it would tap shareholders in a £100m rights issue to help fund stores closures and revamp existing ones.

Newton-Jones said on Thursday that the rights issue had been successfully completed, giving Mothercare “the financial resources and flexibility” to implement its strategy.

“Whilst it is still early days the results, this morning, show some improvement. In the UK, we have made progress towards re-establishing ourselves as a full price retailer. For this approach to be sustainable, we must continue to improve our style, quality, design and innovation in product while modernising our presentation both online and in store. Our international partners continue to see growth opportunities and are encouraged by our plans to modernise the UK business.”

Although Mothercare is struggling in the UK, its international business has been growing. Like-for-like international sales rose by 5% to £398m, boosted by soaring demand in Asia, its fastest-growing region, where it has 372 stores in 12 countries.

Mothercare shares climbed by 3.1% to 178p in early trading, but one market analyst warned that the business still has a long way to go. Mike Dennis at Cantor said the retailer still had to achieve “a significant recovery” in sales before store trading margins can recover, and was probably still suffering from online competitors, such as Amazon.