The Motley Fool

Can the Mothercare share price make a successful comeback?

Image source: Getty Images.

When I last wrote about troubled retailer Mothercare (LSE: MTC) in December, I suggested that things might be about to get much worse. Unfortunately they have.

The group’s shares have fallen by nearly 75% since my last article, as further updates have revealed continued poor trading.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

During the 12 weeks to 30 December, UK like-for-like sales fell by 7.2%, while UK online sales fell 6.9%. International sales were 3% lower during the period, excluding currency effects.

The good news is that the firm’s sales performance did improve slightly during the final quarter of the firm’s financial year, which runs to late March. UK like-for-like sales only fell by 2.8% during this period, while UK online sales returned to growth, rising by 2.1%.

However, international sales continued to worsen, falling by 3.7% during the final quarter. Full-year sales for the whole group are expected to be 1.9% lower than last year.

More shareholder cash required?

Despite raising £100m from shareholders in 2014, Mothercare’s net debt was expected to be about £50m at the end of March. As of 12 April, the company remained in discussion with lenders about refinancing.

One reason for this delay may be that lenders are waiting for the firm’s new chief executive, David Wood, to produce a fresh turnaround plan. Recent press reports suggest that this might include a company voluntary arrangement (CVA) to allow the firm to close about 47 of its 143 stores.

If this happens, I’d also expect the lenders to require an equity fundraising to improve the group’s cash position. Mr Wood may have been referring to this in comments on 12 April, when he said that Mothercare was continuing “to explore additional sources of funding”.

A glimmer of hope?

Looking ahead, broker forecasts suggest that adjusted earnings could recover to 2.4p per share in 2018/19. This gives the stock a 2018/19 forecast P/E of about 7.5.

This might seem cheap, but if new shares are issued as part of a restructuring, existing shareholders could face significant dilution. I think it makes sense to wait until the company has completed any refinancing before considering whether to invest.

This is how it could work

Mothercare isn’t the only well-known retailer with financial problems. Flooring specialist Carpetright (LSE: CPR) has seen its share price fall by more than 70% since it reported a “sharp deterioration in UK trade” with a “significant impact on profitability” in January.

However, Carpetright appears to be several steps closer to a solution than Mothercare. On Thursday, the company announced details of a CVA proposal that would allow it to close 92 sites, and agree a rent reduction on a further 113 sites.

If the firm’s landlords approve this plan, then management also plans to raise £60m through an equity placing and open offer. This cash will be used to help reduce debt and fund the group’s turnaround plans.

I’m not rushing in

Without its lossmaking stores, Carpetright’s profitability could improve significantly. This could become an attractive recovery play.

The problem for small investors like us is that if the plan is approved, most of the new shares will be issued to institutional buyers. They may well be sold at a big discount to the current share price. If this happens, the existing shares could fall sharply.

On balance I think it’s probably still too soon to buy, but I’ll be watching this situation with interest.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.