Mothercare in rescue talks with banks as UK retail crisis spreads

The high street crisis spread on Friday as Mothercare said it was in talks with its banks, and Sports Direct increased its stake in another struggling retailer, Debenhams.

In the wake of Carpetright’s profit warning on Thursday, and the collapse of Toys R Us and Maplin earlier this week, Mothercare became the latest retailer to reveal it was in financial straits as poor trading put it at risk of breaching the terms of its loans.

Mark Newton-Jones, Mothercare chief executive, said it was in talks to raise the funds needed to for a turnaround programme that involves the closure of almost half of its 152 UK stores as sales move online.

“Reflecting the more challenging trading environment and our seasonal cashflows, we are working with our financing partners with respect to our financing needs for the 2019 financial year and beyond,” said the company in a statement.

“We forecast our borrowings to increase towards the limit of our facilities at various points from the start of the new financial year, and will therefore require waivers of certain financial covenants.”

The company added: “We are also exploring additional sources of financing to support and maintain the momentum of our transformation programme.”

Mothercare’s shares have lost more than a third of their value this week and are now at an all time low of 21p. With its shares in freefall the company, which has an £80m hole in its pension pot, is now worth just £37m.

It is shaping up to be one of the blackest weeks for the high street since the aftermath of the 2008 financial crisis with both Toys R Us and Maplin, two of the high street’s best known retailers, entering administration on Wednesday, casting doubt over the future of 5,500 jobs and 300 stores.

Mothercare share price dips below 22p after last month’s profit warning

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In January, Mothercare issued a profit warning in the wake of poor Christmas sales with Newton-Jones blaming a softening of demand with fewer visitors to its stores and website. On Friday the retailer said sales had been in line with expectations since its January warning with profits for the year expected to be at the bottom of the £1m-5m range expected by the City.

“We are working together with all our stakeholders, including colleagues, franchisees, financiers, suppliers and pensions trustees on this next phase of our transformation and their part in delivering these plans,” said Newton-Jones.

“The support already being shown gives us confidence that, despite the challenges, there remains a clear way forward for Mothercare to realise its ambition to be the leading global retailer for parents and young children.”

Debenhams share price remains below 30p

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With retail shares coming under pressure this week Sports Direct put out a surprise statement urging Debenhams to stock its brands in more of its UK stores and to work together online and overseas.

Sportswear tycoon Mike Ashley has been toying with Debenhams since 2015, but it is now the retailer’s biggest shareholder after increasing Sports Direct’s holding for a second time this week to 29.7%, just shy of the level that would trigger a bid for the company.

Debenhams shares are worth 29p, down from 54p a year ago as chief executive Sergio Bucher struggles to turn the business around.

“We see huge value for both companies in a strategic partnership between Debenhams and Sports Direct,” said Liam Rowley, Sports Direct’s head of strategic investments. “There are obvious synergies that can be achieved through the integration of our respective web operations. We also see opportunities to work together internationally.

“Importantly, there is scope for greater collaboration in the UK in order to roll out an elevated offering to consumers.”