Beleaguered mother and child retailer Mothercare has confirmed the closure of 50 stores, announced a refinancing package and said it was re-hiring chief executive Mark Newton-Jones, who stepped down last month, as it swung to a full-year pre-tax loss.
The group said on Thursday that its refinancing will provide funding of up to £113.5m. This will comprise a £28m equity capital raising in July, the proceeds of which will be used for general corporate purposes, revised committed debt facilities of £67.5m, new £8m loans from some of its largest shareholders and a new debt-backed facility of up to £10m from one of its trade partners.
The shareholder and trade partner loans will provide immediate access to up to £18m of additional liquidity to meet the company's short-term liquidity requirements. The refinancing arrangements are conditional upon the completion of a company voluntary arrangement (CVA) and shareholder approval of the shareholder loan.
The restructuring will also involve a reduction of the UK store estate to cut losses and rent liabilities, with 50 stores due to be shut and "material" rent reductions on a further 21, which will be done through the CVA. The plans will see the store estate shrink to 78 by FY20 from 137 currently.
Mothercare also said that Mark Newton-Jones, who stepped down as CEO in April, has agreed to return to the role, while David Wood - who had replaced him - will become group managing director.
Interim executive chairman Clive Whiley said: "The recent financial performance of the business, impacted in particular by a large number of legacy loss making stores within the UK estate, has resulted in an unsustainable situation for the Mothercare brand, meaning the group was in clear need of an appropriate resolution. Since my appointment as interim executive chairman, my priority has been to galvanise support from all of our stakeholders and provide a solution to the short-term problems facing the company.
"These comprehensive measures provide a renewed and stable financial structure for the business and will drive a step change in Mothercare's transformation. The potential for the Mothercare brand in the UK, benefitting from a restructured store estate, and internationally remains significant. However, there remains much to do and we must maintain a disciplined focus on cost control and cash generation throughout the business, but these measures provide a solid platform from which to reposition the Group and begin to focus on growth, both in the UK and internationally."
Shore Capital analyst Clive Black welcomed the progress that has been announced, noting the substantial challenges that it poses to a number of stakeholders, including store staff, but saying that it was "clearly essential that material surgery took place for the business to survive".
"We continue to believe that Mothercare has a valued and trusted brand in the UK and a strong international, capital light, venture. With the forthcoming refinancing underway the business should be in a much firmer place to focus on the day job of driving revenues on a rationalised cost base."
In a separate announcement, the company also said it had swung to a pre-tax loss of £72.8m in the year to 24 March 2018, from a profit of £7.1m the year before, with the second half of the year proving to be more challenging than the first as it took a hit from a number of headwinds, including subdued consumer spending as a result of rising inflation, the squeeze on household incomes and slowing wage growth.
Total group sales were down 1.9% to £654.5m, with total UK sales 4.8% lower at £437.6m and UK like-for-like sales down 1.3%, versus 1.1% growth in 2017.
Total international sales fell 4.9% to £725.3m, while the drop in LFL sales accelerated to 5.9% from 4.1% a year earlier amid ongoing challenging markets, although there was some recovery in the Middle East towards the end of the year.
David Wood said: "After continued momentum in the first half, the business saw a softening in the UK market from the end of September onwards with store sales down for much of the second half. International markets remained challenging during the year, with a number of key markets underperforming, although the return to moderate growth in the Middle East towards the end of the year is encouraging.
"Against this difficult backdrop, the business managed its cash tightly and delivered lower net debt than our January guidance. However, profit is significantly lower than in the previous year.
"The business has modernised significantly over recent years, but we expect the changing dynamics and challenges in the retail sector to continue, so we need to move faster with the execution of our transformation plans."
At 1450 BST, the shares
were up 24.8% to 26.57p.