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Mothercare to close half of its stores and bring back former boss as part of turnaround plan

The struggling retailer will ask creditors and stakeholders to approve its turnaround strategy at a meeting in July
mothercare stop
Fifty stores will be closed immediately if the CVA proposals are approved

Troubled high street retailer Mothercare plc (LON:MTC) has unveiled plans to close almost half of its stores over the next four years as part of its turnaround strategy.

The child and baby care retailer has also secured £113.5mln in financing, while it is bringing back its former chief executive who left in the wake of March’s profit warning.

Like many shops on the high street, Mothercare has struggled to adapt to changing consumer habits, while sales have also suffered as cash-strapped shoppers have tightened their purse strings.

50 stores to shut immediately

The sub-£50mln company currently has 137 stores up-and-down the UK but wants to have a portfolio of just 73 by 2022.

Fifty of these stores will close straight away if creditors – landlords, suppliers, the tax man – approve the company voluntary arrangement (CVA) proposals.

READ: What is a CVA?

Talks with those stakeholders are expected over the next few weeks, with a formal vote taking place at some point in July. One of the parties concerned, the Pension Protection Fund, has already said it will support the plans.

That won’t be the only measure Mothercare wants to introduce; it also wants landlords of 21 other sites to agree to “material” rent reductions in a bid to dramatically cut its cost base.

£113.5mln financing

The firm is in dire need of cash to keep its head above water and has managed to secure £113.5mln in financing from various parties.

A revised £67.5mln debt facility will be available immediately, although its lender will pull the plug if the CVA isn’t given the green light.

An £8mln shareholder loan and £10mln trade partner loan will also allow the company to meet its short-term liquidity requirements.

The rest of the funding will come from a £28mln share placing, which is also contingent on the creditors’, and shareholders’, approval.

Old flame returns

Mothercare added it is to reappoint Mark Newton-Jones who was sacked last month following weaker Christmas trading and the subsequent profit warning.

He was given the boot by then-chairman Alan Parker, who has himself since stepped down.

Former Tesco executive David Wood, who was drafted in to replace Newton-Jones, will become group managing director.

‘Still a place for Mothercare’

“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,” said executive chairman Clive Whiley.

“These comprehensive measures provide a renewed and stable financial structure for the business and will drive a step change in Mothercare's transformation.

He added: “The potential for the Mothercare brand in the UK, benefitting from a restructured store estate, and internationally remains significant.”

Mothercare investors seemed to like the proposals, with shares soaring 24% to 26.3p.

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