Nursery and maternity retailer Mothercare is in rescue talks with banks as shares in the group fell sharply, following a warning that profits would be at the lower end of expectations.
An official statement from the retailer addressed the recent media speculation about share prices, admitting it might have to breach its lending agreements and was seeking ‘additional sources of funding’ to support its ongoing transformation plan.
The statement said the company – which issued a profit warning in January – was in talks to raise the funds needed 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. 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 retailer will be continuing to reducing its UK store estate (from 140 to 80) while increasing digital capabilities, as over 40% of its sales are now made through digital channels.
“The retail sector continues to face a number of pressures that are clearly having a profound impact on the sector as a whole,” said chief executive officer Mark Newton-Jones. “Against this backdrop we are performing in line with our expectations and remain a cash generative business, but we also need to push ahead with our transformation strategy to meet our customers’ needs and continue adapting to evolving shopping habits around the world.”
Mothercare’s shares are, at the time of writing, at an all time low of 18p. With its shares in freefall the company, which has an £80m hole in its pension pot, is currently worth just £37m.