Mothercare to open 200 stores in India.

It is a cliché of parenting that has morphed into an investment thesis: in times of strife, children will be the last to suffer. And so Mothercare has often found itself top of the pile when investors were seeking a non-food retailer with the defensive characteristics of a sturdy child seat.

No longer. Yesterday, having sailed through the worst of the recession, it surprised the market with its first negative like-for-like UK sales figures since late 2005. Some factors are obvious, not least freak first-quarter weather, which meant some stores, notably in out-of-town locations, had to close. The cold weather also gave it little chance to sell its spring range of clothes and outdoor equipment.

But the company points to the quarter to the end of March being its least important, while its British stores are an ever-diminishing part of an increasingly international picture. Its overseas stores now account for 65 per cent of its total of 1,115.

There remains a compelling argument that Mothercare has grown up — or at least grown into its heady valuation of 16 times next year’s earnings. One soft quarter in extenuating circumstances should not give rise to panic, but it does at least allow pause for thought. Although the UK is home to only a third of Mothercare stores, at the last count it accounted for 80 per cent of revenue. This is both because the overseas business is not yet mature and because the stores are typically franchised — Mothercare earns a royalty fee, rather than sales.
So Britain remains the key. And it is here that Mothercare faces supermarket competition on equipment and childrenswear. Further up market, every player from Debenhams to Burberry is increasing its children’s ranges. It should also be noted that Mothercare includes its soaring online sales in like-for-like sales figures.
However, this takes an unduly pessimistic view of Mothercare’s lot. It is working to improve its international supply chain and now that it is developing critical mass in Asian markets, it can justify a hub that prevents goods being made in Asia, sent to Britain and distributed back to Asia. It recently announced plans to open 200 stores in India, which has the world’s biggest baby population, and because it is doing so through a joint venture, rather than a franchise, it will derive a bigger slice of profits.

At home, the shift to out-of-town will deliver cost benefits and will make it more closely resemble those specialists that thrive alongside the supermarkets (think Pets at Home and Halfords). More generally, the franchise model has brought Mothercare to a huge number of maturing markets at breakneck pace without staking the ranch.

Since Tempus last advised readers to dip into Mothercare, just over a year ago, its shares have risen more than 50 per cent. As any parent will tell you, it’s surprising how quickly they grow up. But Mothercare has plenty of growing years ahead. Hold.