Broker snap: UK sales disappoint at Mothercare

17th Nov 2010 10:54

Mothercare's interims disappointed finnCap, particularly the weakness of the UK operation, leaving the broker disinclined to change its negative view of the stock.The adjusted pre-tax profit for the half year to October stood at £12.2m, below the £12.9m finnCap expected. "What's more, this was delivered after a lower share-based payments charge (£2m v £4.5m) than we had assumed", the broker said.Therefore, underlying earnings before interest and tax was a little weaker than the broker had modelled."A series of acquisitions and a build-up of working capital ahead of the 'mini club' launch meant that Mothercare tipped into net debt at the interim stage. Nevertheless, Mothercare has upped the interim dividend 16.4% to 6.4p". UK sales declined 0.4%, with retail sales sliding 2.1%. Like-for-like sales fell by 3.8% and due to freight costs and currency pressures, gross margins slipped 1.5 percentage points.Despite international profit being £2m higher than expected at £15.8m (a 34% increase), a net debt of £8.6m compared to a cash balance of £8.2m last year disappointed the broker. In addition, the broker notes that the pension fund deficit increased from £44.5m to £64m.A 'sell' rating is retained with a target price of 440p.