Moss Bros has tough H1, sales still falling in H2 but more slowly
Moss Bros may describe itself as “the first choice for men’s tailoring” (as it did at the start of its latest earnings report), but when that report goes on to talk about falling total and like-for-like sales, with profits all-but-wiped-out, it begs the question of whether a prominent position in tailoring is a great place to be these days.
The company is battling multiple headwinds and on Friday said that the 26 weeks to July 28 saw total revenues excluding VAT falling 3.3% to £64.5 million. Like-for-like retail sales fell 6.9% and total like-for-likes fell 7%. It also reported sales down in the early weeks of the new season (although the downward footfall trend has softened) and issued a full-year profit warning.
But looking first at H1, it also said like-for-like hire sales on a cash-taken basis were 7.8% down and represented 12.3% of total sales in the half, down from 12.8% a year earlier.
The retail gross margin at 56.5% was 2.8% lower for the half, partly dented by weaker sterling. Ebitda profit almost halved, dropping to £3.7 million. And adjusted profit before tax of £0.2 million was down from the prior period’s restated £3.9 million. The pre-tax loss was £1.7 million after “adjusting items” of just under £2 million. A year ago the company had made a restated £3.9 million profit.
Was there any good news? A bit. Like-for-like e-commerce sales rose 9.5% and now make up 12.7% of all sales, up from 11.2% a year ago. And careful cash management delivered a positive cash balance of £15.2 million at the end of the half, “reflecting the strong cash flow generation of the business.”
And the company said that it has seen “the full resolution of the stock issues encountered earlier in the year,” and is in “a more positive trading position [after] the disruption of the hot summer.”
So what actually went wrong in the half? Well, as that statement above reveals, its ongoing supply chain issues were a problem, but trading has improved “significantly” since they were resolved.
But the very hot summer was the big issue. “Coupled with the distraction of England's success at the World Cup, customer footfall reduced in Q2 on average by 7% and in the worst affected stores by up to 14%,” the company said. “We estimate that we were negatively impacted by around £2.7 million of retail store sales, which would have delivered [around] £1.4 million of gross profit.”
As the e-tail growth shows, e-commerce performance and growing distribution via third party marketplaces were less affected by these reductions in footfall and “continued to achieve positive momentum.”
And that whole question of whether tailoring is a good market to be in was perhaps a little unfair - after all, tailoring is what Moss Bros does. The company said that in the first half, its 'Tailor Me' custom tailoring service “continued to grow, offering enhanced fabric choices and is now an established part of the in-store offer in almost every store.”
TODAY AND TOMORROW
So how will all this affect the second half? On Friday, the company said that retail like-for-like sales, including VAT, in the first seven weeks to September 15 are down 3.7%, “showing an improved trend from the extreme reduction in footfall of the high summer months.”
And e-commerce sales, including VAT, in the first seven weeks of the half are up 23.2%, again showing an improving trend compared with the first half of the year.
Hire like-for-likes on a cash-taken basis, are 13.3% down so far, “reflecting the anticipated switch to less formal wedding attire.” But the group “has achieved offsetting growth in Tailor Me,” we’re told.
And it said “early responses to the autumn/winter 2018 range across Retail are positive and product availability is good.”
“Good progress” has also been made with a soft launch into new marketplaces and “the group is well positioned for the peak trading period leading up to Christmas.”
Not that this will be enough to turn the full-year results into a success story and it issued that profit warning, although one based largely on its continued commitment to not cutting prices and to investing in the business.
It said in its results statement: “Although current trading is showing a steady and improving trend and the board recognises it is possible to mitigate the footfall-related gross profit shortfall of the summer via short-term cost cutting, we feel it would be detrimental to the long-term health of the business. This decision to continue to invest means that the group is still on track to deliver an operating profit before adjusting items, but materially lower than current market expectation of £2.3 million.”
That investment will be focused in “the innovation of our product and proposition, as well as the development of our e-commerce offer and the expansion of new marketplaces.”
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