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Mothercare posts annual pre-tax loss of £102.9m

UK sales down, while international sales surge.

The British mother and baby products retailer Mothercare has reported a pre-tax loss of £102.9m for the 53-week period ended 31 March 2012, compared to a profit of £8.8m for the same period last year.

Diluted earnings per share were 105.2p.

Group sales increased by 2.4 per cent to £812.7m (2011: £793.6m), while gross profit was £42.3m (2011: £55.9m).

Total international sales increased by 17.8 per cent to £672.4m (2011: £570.9m), while total UK sales were down by 4.6 per cent to £560.0m (2011: £587.2m) with a like-for-like sales decline of 6.2 per cent.

Total direct sales were up 0.8 per cent at £130m (2011: £129m) with direct in home down 1.7 per cent at £91.7m and direct in store up 7.3 per cent at £38.3m.

For the fiscal year 2012, the company expects total International sales to continue to grow strongly with circa 150 new store openings and sales growth of around 20 per cent. In the UK Mothercare expects the consumer environment to remain difficult and not anticipates any gains in gross margin.

Net debt at year end of fiscal 2013 is expected to be circa £25m with interest costs of £3m.

The group currently has 1,339 owned and franchised stores in 59 countries - 409 in Europe, 318 in Asia, 311 in the UK, 290 in the Middle East and Africa and 11 in Latin America.

Simon Calver, chief executive of Mothercare, said:

Worldwide network sales are up 6.4 per cent and our brands remain as relevant to our customers today as they ever have been. I have been fully involved in the formulation of the transformation and growth plan and I know that it is both the right plan and one which the team and I can deliver.

We have a long way to go, and the plan to bring the UK business back to acceptable levels of profitability will take three years. We need to invest in e-commerce, be ruthless with our non-store cost base and use our scale and growth worldwide to drive sourcing economies and pass these savings onto the customers to improve our value for money around the world. Everything we do will enhance customer value, experience and loyalty in each of our 59 countries. My team and I are up for the challenge and, whilst there is much to do in this difficult economic climate, I look forward to delivering the ‘Transformation and Growth’ plan. As a team, this will be our most important delivery yet.

Photo: Getty Images
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A simple U-Turn may not be enough to get the Conservatives out of their tax credit mess

The Tories are in a mess over cuts to tax credits. But a mere U-Turn may not be enough to fix the problem. 

A spectre is haunting the Conservative party - the spectre of tax credit cuts. £4.4bn worth of cuts to the in-work benefits - which act as a top-up for lower-paid workers - will come into force in April 2016, the start of the next tax year - meaning around three million families will be £1,000 worse off. For most dual-earner families affected, that will be the equivalent of a one partner going without pay for an entire month.

The politics are obviously fairly toxic: as one Conservative MP remarked to me before the election, "show me 1,000 people in my constituency who would happily take a £1,000 pay cut, then we'll cut welfare". Small wonder that Boris Johnson is already making loud noises about the coming cuts, making his opposition to them a central plank of his 

Tory nerves were already jittery enough when the cuts were passed through the Commons - George Osborne had to personally reassure Conservative MPs that the cuts wouldn't result in the nightmarish picture being painted by Labour and the trades unions. Now that Johnson - and the Sun - have joined in the chorus of complaints.

There are a variety of ways the government could reverse or soften the cuts. The first is a straightforward U-Turn: but that would be politically embarrassing for Osborne, so it's highly unlikely. They could push back the implementation date - as one Conservative remarked - "whole industries have arranged their operations around tax credits now - we should give the care and hospitality sectors more time to prepare". Or they could adjust the taper rates - the point in your income  at which you start losing tax credits, taking away less from families. But the real problem for the Conservatives is that a mere U-Turn won't be enough to get them out of the mire. 

Why? Well, to offset the loss, Osborne announced the creation of a "national living wage", to be introduced at the same time as the cuts - of £7.20 an hour, up 50p from the current minimum wage.  In doing so, he effectively disbanded the Low Pay Commission -  the independent body that has been responsible for setting the national minimum wage since it was introduced by Tony Blair's government in 1998.  The LPC's board is made up of academics, trade unionists and employers - and their remit is to set a minimum wage that provides both a reasonable floor for workers without costing too many jobs.

Osborne's "living wage" fails at both counts. It is some way short of a genuine living wage - it is 70p short of where the living wage is today, and will likely be further off the pace by April 2016. But, as both business-owners and trade unionists increasingly fear, it is too high to operate as a legal minimum. (Remember that the campaign for a real Living Wage itself doesn't believe that the living wage should be the legal wage.) Trade union organisers from Usdaw - the shopworkers' union - and the GMB - which has a sizable presence in the hospitality sector -  both fear that the consequence of the wage hike will be reductions in jobs and hours as employers struggle to meet the new cost. Large shops and hotel chains will simply take the hit to their profit margins or raise prices a little. But smaller hotels and shops will cut back on hours and jobs. That will hit particularly hard in places like Cornwall, Devon, and Britain's coastal areas - all of which are, at the moment, overwhelmingly represented by Conservative MPs. 

The problem for the Conservatives is this: it's easy to work out a way of reversing the cuts to tax credits. It's not easy to see how Osborne could find a non-embarrassing way out of his erzatz living wage, which fails both as a market-friendly minimum and as a genuine living wage. A mere U-Turn may not be enough.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.