Shares in Mothercare collapsed yesterday after the babycare retailer warned that profits would disappoint and revealed it has opened crunch talks with its lenders.
The company, which issued a profit warning in January following dismal Christmas trading, expects adjusted pre-tax profits to come in at the lower end of the £1million to £5million range it had previously guided.
Mothercare is also working with its lenders as it seeks “waivers of certain financial covenants”.
The group said: “Reflecting the more challenging trading environment and our seasonal cash flows, we are working with our financing partners with respect to our financing needs for 2019 and beyond.
“We forecast our borrowings to increase towards the limit of our total committed and non-committed facilities at various points from the start of the new financial year and will, therefore, require waivers of certain financial covenants.”
Shares tanked more than 15%, wiping about £7million off Mothercare’s market value, after the retailer also said it was exploring “additional sources of financing”.
Chief executive Mark Newton-Jones is trying to turn the business around and has embarked on a radical store closure programme.
Mothercare, which has a long-term clothing partnership and advertising tie-in with celebrity Myleene Klass, is slimming down its UK estate. It aims to reduce the total number of stores to between 80 and 100, from 143, having already shuttered several locations over the past year.
In yesterday’s trading update, it said: “As previously announced and as part of our transformation strategy we have taken decisive action to reduce our central cost base.
The business is also continuing with its planned strategy of reducing the UK store estate, while increasing digital capabilities. A further announcement will be made in due course.”
The announcement comes in a horror show week for the retail sector, with Toys R Us and Maplin collapsing into administration on Wednesday, impacting more than 5,000 jobs.
Prezzo and New Look are also poised to shut stores through company voluntary arrangements, following similar moves by Jamie’s Italian and burger chain Byron earlier this year.
Shops have been hammered by weak consumer confidence on the back of Brexit-fuelled inflation.
Mr Newton-Jones said: “The retail sector continues to face a number of pressures that are clearly having a profound impact on the sector as a whole.”