Shares in retailer Mothercare plunged by 10 per cent on Tuesday after the group cast “significant doubt” over its future on Tuesday.
In a trading update it said it had breached an emergency loan agreement leaving the firm on the hook for millions of pounds.
The AIM-listed company was set to repay an £8m loan from its lenders Gordon Brothers – the investment firm that snapped up Poundland earlier this year – in October 2026, which served as a rescue package to help make Mothercare’s debt more manageable.
Before the lifeline was provided in October 2024, the firm was drowning in a debt of £19.5m, with an interest rate of around 13 per cent.
As part of the deal for a cheaper loan, Gordon Brothers installed a safety rule that Mothercare must always have at least £2.6m in cash.
But following a series of hits to the firm’s bottom line, it has fallen below the threshold meaning the loan is now “repayable on demand”. This puts the firm at the mercy of the lender, which is now able to demand the total return of the loan at any given time.
Mothercare suffered a 25 per cent drop in sales in the first half of the financial year to £90.7m whilst revenue plunged 45 per cent to £11.6m – the result of the end of the group’s five-year exclusive partnership with Boots
In its results posted on Tuesday, Mothercare said: “We have concluded that, in this situation, there is a material uncertainty that casts significant doubt that the group will be able to operate as a going concern without utilising uncommitted or new financing facilities.”
The firm also warned that in the case of deteriorating trading conditions it would be “unable to mitigate the material uncertainties”.
“The group would be unable to meet liabilities as they fall due and potentially need to secure additional funding,” it added.
Mothercare’s chairman Clive Whiley said the group had benefited from “ongoing support of its lender” with “regular positive discussions”.
He added: “Whilst Gordon Brothers has not indicated that they require immediate repayment of the facility, they would clearly prefer earlier repayment than the current facility expiration date”.
Mothercare’s pivot to India
Mothercare is now looking to India for further growth potential after entering a joint venture with Reliance Brands, a subsidiary of India’s largest private corporation owned by billionaire Mukesh Ambani.
Reliance paid £16m in cash to own 51 per cent of the Mothercare brand rights across South Asia, which was used to slash Mothercare’s massive UK bank debts.
Mothercare retains a 49 per cent stake, meaning they still own nearly half of the brand’s future profits in the world’s most populous region without paying for any shops.
Under this new deal, Mothercare no longer pays rent, electricity, or staff wages in India; instead, they collect royalty fees and sourcing fees for being the brand owner.
Reliance plan to open 50 new Mothercare stores in 2026 alone to capitalize on India’s booming middle class.
While India currently brings in around £18-£24m in sales, the partners have set a staggering goal to hit £300m in sales within just five years.