The fighting talk from Mothercare (MTC) and Carpetright (CPR) continued today as this pair of bombed out retail stocks provided further updates on progress towards securing their respective futures.
Whether investors have the stomach for the fight is another matter, however, with Carpetright shares down another 17% after revealing a restructuring plan that includes a bigger-than-expected £60 million equity fundraising.
Mothercare shares rose 5% after its trading update, but the stock is still down by 85% in the past year amid fears it is in breach of financial covenants. Discussions with lenders are ongoing under the leadership of new CEO David Wood.
As investors in both companies have already found out, cheap stocks with little trading momentum are classic value traps. But on the flip side, it’s worth remembering this has been a more encouraging week for consumer-based stocks, with impressive results from Tesco (TSCO) and better-than-expected updates from Greene King (GNK), Dunelm (DNLM) and Saga (SAGA).
- These stockmarket dogs fight back
There are also signs that the gap between wage growth and inflation is narrowing, which could lead to a more confident consumer.
Whether this trend materialises in time to help Mothercare or Carpetright remains to be seen. Mothercare’s like-for-like sales were down 2.8% in the UK in the quarter to March 24, although this was offset by online growth of 2.1% as the company stuck by previous guidance on annual profits and debt.
Former Tesco executive Wood, who took over from Mark Newton-Smith earlier this month, said there had been “good progress” in reducing the size of the UK estate as a key part of the retailer’s turnaround plan.
However, he added: “Our central focus must be customers and their experience, securing Mothercare’s reputation as the number one specialist for parents.”
The situation is much more precarious at Carpetright, where directors have identified 205 sites in the UK that are either underperforming or on unfavourable lease terms.
As part of a company voluntary arrangement (CVA), 92 of these stores have been identified for closure, with the remainder being subject to a reduction in rental costs and revised lease terms.
The accompanying fundraising, which is expected to involve a placing and open offer, will be used to reduce debt and fund the group’s ongoing strategy, including the costs associated with the CVA.
In the meantime, Carpetright said trading conditions remained difficult as it heads towards a small loss for the year to April 28. At the start of this year, City analysts were looking for profits of between £13 million and £15.6 million.
Chief executive Wilf Walsh said the CVA and equity financing would enable Carpetright “to address the competitive threat from a position of strength”.
Shares peaked at 1340p in summer 2007 and were still worth 700p as recently as 2013. Today they were trading as low as 32p.
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