Babycare retailer Mothercare relied on the benefits of its overseas expansion yesterday after conceding that costs in the UK were rising faster than its profits.
Mothercare said its 232 stores in the UK generated 17 per cent less profit than a year ago as higher rents, energy bills and wage deals with staff took their toll.
Like-for-like sales also fell by one per cent in the UK as Mothercare cut prices to compete with rivals and shoppers were less willing to splash out on the high street.
But the retailer was able to report a three per cent hike in group sales to £250.4 million and a 4.6 per cent uplift in pretax profits to £11.4 million, largely due to its performance overseas.
Mothercare has 247 international outlets - more than in its domestic market - and these generated profits of £4.6 million that were 15 per cent higher than a year ago.
"Our international business represents a substantial growth opportunity. We see potential for at least another 150 international stores over the next three years," chief executive Ben Gordon said.
Mothercare has also signed a franchise agreement to open 40 stores in India.
In the UK the group said it had been focused on rejuvenating outlets in the UK, buying more products directly from suppliers and the construction of a £13 million national distribution centre at Daventry that now handles 60 per cent of all products.
Products have also been improved with a greater emphasis on fashion while a gift offer, which focuses on children younger than two years old, has been successfully launched.
The majority of its 158 high street stores have been refitted and computers introduced so customers can see the complete catalogue range - even at smaller sites.
Mr Gordon said: "The work we have done to rebuild the business over the past three years means that we are in a stronger position than in the past, despite the trading environment continuing to be tough."
In the UK, the retailer said gross margins improved on the back of products being sourced more cheaply, but higher costs meant retail profits in the 28 weeks to October 8 fell to £4.4 million from £5.3 million a year ago.
Mr Gordon said attention was now being focused on the 74 out-of-town stores.
The group said its already strong internet and catalogue Direct business remained central to its multi-channel strategy and that it saw significant opportunities for extension and improvements.
"Our Internet business is growing very fast, about 50 per
cent at the moment," Mr Gordon said.
Investec analyst Matthew McEachran noted the faith of the management in the improved Christmas ranges and said second-half sales could be better than the one per cent decline forecast.
However he stuck to the view that profits for the full year would ease slightly to £19.3 million from the £19.6 million banked by Mothercare at the same stage of 2004.
Shares rose sharply last week on speculation Mothercare was being sized up by a private equity firm although prices dropped back with analysts sceptical about the likelihood of such a deal.
Shares closed up 91/2p at 3441/2p.