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Mothercare ups guidance but warns on impact of Russian closures

Its latest update comes a month after it announced that its franchise partner’s retail business in Russia, which includes 116 stores and online, had been suspended

Mothercare has announced that EBITDA is now expected to be in the range of £11.5m to £12m for the year ended 26 March 2022, ahead of analysts’ expectations, despite warning of the effects of the closure of its business in Russia.

The anticipated higher earnings are reportedly due to a mix of one-off benefits and higher retail sales. 

Unaudited net worldwide franchisee retail sales were £385m, 7% higher than the previous year, for example, yet the group said these results were still “significantly impacted” by Covid-19

It noted retail sales remain below the levels it would otherwise expect and are around 25% down on total retail sales the year before the pandemic. Meanwhile, online retail sales represented 10% of total retail sales, slightly down on the 12% for the previous financial year, yet this reflected lower levels of Covid-19 restrictions on store openings.

Its latest trading update comes a month after Mothercare announced that its franchise partner’s retail business in Russia, which includes 116 stores and online, had been suspended. 

It noted that £88m of its annual retail sales came from Russia and the territory directly contributed around £5.5m to adjusted EBITDA for the year.

In light of this, it will now approach the new financial year with “a degree of cautious confidence”, notwithstanding that it has completely excluded Russia from forecasts given the uncertainty around when stores may reopen. 

It said it expects the closures to impact its results for the year to March 2023 by £6m, as previously guided, adding that its Russian franchise partner has continued to pay the salaries of the team in full despite the suspension of sales in the market. 

In addition to the impact of Russian closures, the group said that Covid-19 has had a significant impact on all of its franchise partners’ profitability. It added this has “inevitably” resulted in a need for them to reduce costs and the levels of investment they have been able to make in their businesses. 

It said: “This is likely to mean that the return to pre pandemic levels of trading may take longer and in some cases we may directly contribute to achieve that recovery, which will benefit both our own business and our franchise partners’ businesses in the longer term.”    

Clive Whiley, chairman of Mothercare, said: “As expected last year was one of further progress for Mothercare, generating free cash flow from operations as a focused, asset light global franchising business. Whilst we must now deal with the impacts of the suspension of our franchise partner’s operations in Russia, we retain the resilience to deal with this additional challenge satisfactorily.

“We continue to drive initiatives designed to maintain momentum in improving profitability particularly when we return to more normal pre-pandemic levels of business. The near halving of the pension deficit also offers the potential for material reductions in our recovery plan payments.” 

He added: “This is a good backdrop against which to revisit our current financing arrangements and we are exploring all available alternative funding options to further improve our financial flexibility.”

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