LONDON—Britain’s Mothercare, the struggling mother and baby products retailer, said it would close over a third of its stores as part of a survival plan that also sees the return of the chief executive who abruptly departed just five weeks ago.
The firm’s sales and profit have been hammered by intense competition from supermarket groups and online retailers in its main UK market as well as by rising costs, resulting in what it called “a perilous financial condition.”
Mothercare’s shares had lost 83 percent of their value over the last year but rose as much as 34 percent on Thursday, May 17, after the firm detailed a 113.5 million pounds refinancing, including a 28 million pounds equity raise, and said Mark Newton-Jones would return as CEO.
Newton-Jones was abruptly ousted as CEO on April 4 by former chairman Alan Parker but will now return.
Newton-Jones’ replacement as CEO David Wood, a former Tesco executive, will become group managing director.
Mothercare said it would seek creditor approval for company voluntary arrangement (CVA) proposals that would enable it to shut 50 stores and secure rent reductions on 21 others. As many as 800 jobs could be lost.
The firm currently trades from 137 UK stores, having had nearly 400 a decade ago. The new plan would see it trade from 78 UK stores by 2020.
The CVA route, which allows firms to avoid insolvency or administration, has already been taken this year by fellow UK retail strugglers—fashion chain New Look, floor coverings group Carpetright and department store group House of Fraser.
Brutal trading conditions are also partly responsible for the collapse of Toys R Us UK, electricals group Maplin and drinks wholesaler Conviviality.
Shares in Mothercare were up 4.8 pence at 26.6 pence at 8:32 a.m. GMT, valuing the business at £46 million pounds.
“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…meaning the group was in clear need of an appropriate resolution,” said interim executive chairman Clive Whiley.
In addition to the proposed equity issue Mothercare has also secured revised committed debt facilities of £67.5 million, £8 million of new shareholder loans and a new facility of up to £10 million from a trade partner.
Creditor meetings to vote on the CVA proposals are expected to be held on June 1, with the process expected to complete in July. The equity issue is conditional on the CVA going through.
Mothercare, which also trades from 1,131 stores overseas, said results for the year to March 24 would be published later on Thursday and would show a performance in line with previous guidance.
By James Davey