The struggling retailer recruits a hotshot CEO to help boost its online sales.
By any measure, Mothercare (LSE: MTC) had a dreadful 2011.
Reeling retailers
In a trading update last month, the specialist mother-and-baby chain reported UK like-for-like sales down 3% in the 13 weeks to 7 January 2012. Even worse, thanks to store closures, total sales in the UK fell 6.9%.
Although international sales were strong, this trading statement disappointed investors, coming on the back of a half-year, pre-tax loss of £81.4 million that sent its shares tumbling by 40% in one day. What's more, Mothercare shares crashed by almost three-quarters in 2011, falling 73% from 613p to a mere 166p.
Hence, in October, executive chairman Alan Parker announced the departure of Mothercare's chief executive. Ben Gordon, CEO for nine years, left the group on 17 November "by mutual consent".
New blood at the top
Although Mothercare now has a thousand stores overseas, it worries most about its UK high-street presence and sluggish online sales. Facing fierce competition from supermarkets, discounters and rival websites such as kiddicare.com (bought by Wm Morrison (LSE: MRW) for £70 million a year ago), Mothercare must adapt or die.
Hence, the FTSE 250 firm yesterday announced that it had poached Simon Calver to become its new chief executive. Calver -- currently the CEO of online DVD-rental business LOVEFiLM, bought by Amazon (NASDAQ: AMZN.US) for £200 million in January 2011 -- will join Mothercare at the end of April.
Clearly, shareholders hope that the online and branding expert -- who has led LOVEFiLM since 2005 -- will help to revive its online sales. In addition, Calver -- formerly an executive at Dell (NASDAQ: DELL.US) and PepsiCo (NYSE: PEP.US) -- is expected to boost global expansion of the Mothercare and Early Learning brands into high-growth emerging economies, notably China and India.
Nevertheless, Mothercare's chairman emphatically stated that the retailer has "absolutely not" given up on Britain's high streets. Yet the group is pushing ahead with plans to close 100 of its 350 UK stores over two years.
LOVEFiLM's loss
It seems likely that Calver's departure will leave a difficult hole to be filled at LOVEFiLM, just as the competition from movies-on-demand rivals Netflix (NASDAQ: NFLX.US) and BSkyB (LSE: BSY) heats up. He will be replaced by Jim Buckle, the firm's chief operating officer, who will become managing director.
Also, two more executives announced their departure from LOVEFiLM today. Chief technology officer Mike Blakemore and group digital officer Lesley MacKenzie have also left the firm. LOVEFiLM would not comment on whether the pair will be replaced.
Personally, as a delighted LOVEFiLM subscriber since last autumn, I do hope these three departures won't impact on its excellent customer service.
Mothercare's gain
Of course, the big question is whether Calver repositions Mothercare as a downmarket or upmarket specialist retailer. Going downmarket would take it into the cut-throat 'pile it high and sell it cheap' world of deep discounting. On the other hand, going upmarket would force it to take on premium brands with deep pockets and big marketing budgets.
Given that Mothercare has this week signed up Jools Oliver, celebrity chef Jamie Oliver's wife, to promote its new range of children's clothing and bedding, it looks as though Mothercare has already started its rebrand.
It remains to be seen whether 47-year-old Calver will live up to the hype by turning around the troubled retailer's physical (as well as digital) fortunes. In his favour, Calver had his first child, a son, less than six months ago, so he has 'skin in the game'.
Too risky for me
For now, shareholders have reacted positively to news of Calver's appointment, driving up Mothercare's share price by nearly 8% yesterday and a further 4% today. As I write, its shares trade at 225.5p, valuing the retailer at just short of £200 million.
Right now, Mothercare's fundamentals are horrific, as it trades on a forward price-to-earnings ratio approaching 140 and could even make a full-year loss. What's more, its forecast dividend yield of 2.4% is covered just 0.3 times by earnings. As the dividend is uncovered, it may well be cut or cancelled.
Thus, even if Mothercare does succeed in becoming a multi-channel, multi-cultural retailer, its shares just aren't for me. In my eyes, they offer far too much risk for the faint hope of future rewards.
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