Mothercare PLC Reports H1 Loss Amid 25% Sales Decline and Debt Covenant Breach

Mothercare H1 FY26: Sales Slide, Small EBITDA, and a Debt Covenant Breach

Mothercare’s interim numbers for the 26 weeks to 27 September 2025 show a business that has shrunk sharply, but with signs of stabilisation in a leaner form. The headline: worldwide retail sales by franchise partners fell 25% to £90.7 million, adjusted EBITDA slipped to £0.8 million, and the Group breached a liquidity covenant on its debt after the period end. Net debt, however, is down to £5.8 million versus £17.1 million a year ago.

Let’s unpack what happened, why it matters, and what to watch next.

What drove the decline: Middle East closures and the UK Boots exit

Management pins the bulk of the sales drop on closures in the Middle East and the planned exit from Boots in the UK. Like-for-like sales (same stores, year-on-year) were down 6%, which is painful but not catastrophic given the structural changes.

The franchise estate contracted again: total stores fell to 344 (from 440), with space down to 858k sq ft (from 1,100k). A net 50 stores were closed in the Middle East in the 12 months to September 2025, reflecting regional unrest and weaker footfall. The Board says profitability for the partner there is improving after clearing old stock and does not expect further significant closures.

Online retail sales were £10.0 million (H1 FY25: £12.2 million). The statement references online penetration as both 11% and 10% of total retail sales in different places; either way, the mix was roughly flat year-on-year.

Cash, debt and going concern: the real story

Mothercare refinanced last year, swapping a pricey £19.5 million loan (13% + SONIA plus 1% PIK interest) for an £8 million facility at 4.8% + SONIA (with a 5.2% floor) and PIK interest of 1%-2%. That has pulled finance costs down to £1.1 million (from £2.5 million).

The Group warned previously it expected to breach a liquidity covenant that requires cash balances to exceed £2.6 million (outside a short grace period). After the half-year, it did breach. That makes the facility technically repayable on demand. The lender has not asked for immediate repayment, and management says there is sufficient cash to trade for the foreseeable future. Still, this is a material uncertainty: refinancing the facility and resetting pension contributions are essential to the going concern assessment.

On pensions, contributions totalling £3.0 million for the year to March 2026 have been deferred to March 2026, with payments expected to resume from 19 April 2026 at a level the Trustee deems affordable. The retirement benefit obligation stands at £21.1 million.

Strategy reset: Reliance JV and Ebebek licence as growth levers

Two big partnerships are designed to rebuild scale:

• South Asia joint venture with Reliance Brands Ltd: Mothercare retains a 49% stake in JVCO 2024 Ltd, with perpetual rights in India, Nepal, Sri Lanka, Bhutan and Bangladesh. Reliance aspires to lift retail sales in the region to around £300 million within five years, with 50 new stores in 2026. Mothercare earns sourcing fees and participates in equity value via its 49% holding. The carrying value of the associate is £10.8 million.
• Turkey licence with Ebebek: a 10-year exclusive brand licence. Ebebek, with c.280 stores and around £400 million revenue, is rolling out Mothercare-branded product in Turkey imminently, with a full range due in the spring. The agreement also enables Mothercare to buy and rebrand Ebebek-sourced product for other territories. Ebebek has also shown interest in extending the relationship to other geographies.

These deals underline the remaining strength of the brand IP and should, in time, widen volumes and buying benefits for franchise partners. The near-term challenge is timing: the balance sheet needs earlier support than these growth engines can likely deliver.

Key numbers from the interim statement

Metric	H1 FY26	H1 FY25
Revenue	£11.6 million	£21.0 million
Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation)	£0.8 million	£1.7 million
Adjusted (loss)/profit from operations	£(0.5) million	£1.1 million
Adjusted loss before taxation	£(1.1) million	£(1.4) million
Loss for the period	£(1.7) million	£(1.8) million
Basic (loss) per share	(0.3)p	(0.3)p
Worldwide retail sales by franchise partners	£90.7 million	£121.2 million
Online retail sales	£10.0 million	£12.2 million
Total stores	344	440
Net debt	£5.8 million	£17.1 million
Retirement benefit obligations	£21.1 million	£20.6 million
Total equity	£(10.1) million	£(29.0) million

Notes: constant currency decline in worldwide retail sales was 22%. Like-for-like retail sales were down 6%. Adjusted items in H1 included £0.3 million of restructuring costs. Dividend remains nil.

Positives and pressure points

What looks constructive

• Net debt is much lower at £5.8 million, giving more degrees of freedom than a year ago.
• Finance costs have fallen markedly after refinancing.
• Partnerships with Reliance and Ebebek bring credible, well-capitalised operators into the tent, with scope for scale and sourcing benefits.
• Store closures in the Middle East may have peaked, with improving partner profitability post stock clearance.

What’s still tough

• Sales fell 25% and like-for-like was -6% – the core base is smaller and still soft.
• Liquidity covenant breach means the loan is repayable on demand, and there is a material going concern uncertainty until refinancing is nailed down.
• Negative equity remains (£10.1 million) and the pension deficit is sizeable at £21.1 million, even with deferrals.
• Concentration risk: the model leans on a smaller number of large partners and territories.

Capital structure watch: warrants and potential dilution

As part of last year’s refinancing, Gordon Brothers received warrants over up to 43.4 million shares at 8.5p, exercisable for five years. If fully exercised, these would represent about 7% of the enlarged share count. It is not disclosed whether any have been exercised to date.

My take and what to watch in 2026

Mothercare has slimmed down and secured heavyweight partners, but the clock is ticking on the balance sheet. The operational plan is sensible: plug into Reliance and Ebebek to rebuild volume, standardise product, and lift partner profitability. The financial plan now needs to catch up – refinancing the term loan and agreeing an affordable pension schedule by 31 March 2026 are the big hurdles.

Key things I’ll watch next:

• Refinancing terms and timing for the £8 million facility that is currently repayable on demand.
• The new pension contribution schedule agreed with the Trustee and cash flow implications post 19 April 2026.
• Reliance store roll-out in 2026 (targeting fifty new stores) and early run-rate towards their revenue ambitions.
• Turkey launch traction with Ebebek and any move to extend the licence into other territories.
• Stabilisation of the franchise estate – have closures truly bottomed out in the Middle East?
• Clarity on online penetration (the RNS cites both 10% and 11%) and any UK brand relaunch beyond Boots.

In short: strategic progress, financial fragility. If management lands the refinancing and the partners deliver on growth, the operating leverage can work in shareholders’ favour. Until then, the risk sits with funding and execution.