The Investment Column: Mothercare is enjoying its very own baby-

Babies are back in fashion and so is Mothercare. Over the past two years, the mother-and-baby retailer has transformed its fortunes under the able leadership of Ben Gordon.

It is a story that some of the other big names of the high street would kill for, especially given the current slowdown. It has invested in price, product and its estate, while managing to increase profits. After a three-year hiatus, it has also started opening new stores.

Full-year figures yesterday showed that pre-tax profits rose 19 per cent to pounds 19.6m. This excluded pounds 4m of exceptional items. UK like-for-like sales have been slowing in recent weeks; the flip side is that gross margins have improved by 6.7 percentage points over the past two years.

Crucially, for a group that was haemorrhaging cash when Mr Gordon took over, it had pounds 37m of cash on its balance sheet at its year-end. This meant it could double its dividend to 8p per share, improving its yield to 3 per cent.

Nine out of ten expectant mums visit a Mothercare, but only six in ten mothers whose children are up to three years old, which gives the group room to improve.

Should even mums-to-be go on strike in the coming months, there is always Mothercare's flourishing overseas division. By Christmas, the group will have more stores operating outside the UK than in it. Operating profits from its overseas stores increased to pounds 7.3m last year from pounds 6.1m, while in the UK they rose by pounds 900,000 to pounds 10.6m.

This column recommended investors top up their Mothercare holdings last summer. Since then, the shares, up 2p at 289.5p, have drifted but with year three of Mr Gordon's three-year recovery story still to come now is no time to bail out. A solid hold.

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