Moss Bros swings to loss, warns over FY profit

In the 26 weeks to 28 July, the company made a pre-tax loss of £1.7m after adjusting items of just under £2m, compared to a profit of £3.9m the year before.

Meanwhile, total group revenue fell 3.3% to £64.5m, with like-for-like retail sales, including e-commerce, down 6.9%. LFL hire sales, which represent 12.3% of total sales in the half, were down 7.8%.

The retail gross margin declined 2.8% to 56.5% and earnings before interest, taxes, depreciation and amortisation came in at £3.7m versus £7m in the first half of 2017. Moss Bros declared an interim dividend of 1.50p a share, down from 2.03p.

The company said it faced a shortage of stock in the first quarter due to the previously announced temporary supply chain issues. However, the stock position had been corrected by May and it began to see much better trading.

But as the hot weather and the World Cup arrived, customer footfall reduced in the second quarter by 7% on average year-on-year, with the worst-affected stores seeing a drop of as much as 14%.

"Having assessed the quarter on quarter decline in footfall, we estimate that we were negatively impacted by around £2.7m of retail store sales, which would have delivered circa £1.4m of gross profit," it said.

Moss Bros said that although current trading was steady and improving and it could mitigate the footfall-related profit shortfall through cost-cutting, this would be bad for the company's long-term health.

As a result, it now expects to deliver an operating profit for the full year that is "materially" lower than consensus expectations of £2.3m.

Chief executive officer Brian Brick said: "We remain acutely aware that the highly competitive retail landscape is set to continue, alongside an unpredictable economic backdrop and increasing cost headwinds.

"We have reviewed our expectations for the second half of the year despite having a number of key trading weeks still ahead of us and whilst short-term cost cutting would make us more certain of mitigating the footfall related gross profit shortfall and therefore hitting the market's expectations, we feel it would be detrimental to the long-term health of the business. As such, we have taken the decision to continue to invest and to deliver profit lower than expectations."

Russ Mould, investment director at AJ Bell, said: "Perhaps the company could be forgiven for blaming the hot weather - shopping for a heavy suit might not appeal when the sun is blazing. However, attributing its problems to the ‘distraction’ posed by England’s success at the World Cup feels pretty tenuous.

"As a reminder, England played seven games at the tournament and of those, just three, including a pretty meaningless third place play off, were played at times when most Moss Bros stores would even have been open.

"Plus, manager Gareth Southgate’s habit of wearing a waistcoat on the touchline saw sales of M&S waistcoats soar and could arguably have given a boost to the idea of wearing formalwear in general. After all, Moss Bros also sells waistcoats and should have been a beneficiary of the Southgate trend too."

Mould said that if the weather and World Cup are truly to blame for the recent rough patch, then investors will expect to see a distinct improvement in performance when the company next updates the market.

At 0835 BST, the shares were down 18% to 38p.