Shares in Moss Bros were down by 13.44% this morning (21 September)

Shares in Moss Bros were down by 13.44% this morning (21 September)

Shares in Moss Bros tumbled by more than 13% this morning (21 September) as the menswear retailer reported a loss for the first half and warned its full-year operating profit is expected to come in "materially lower" than current expectations.

For the 26 weeks to 28 July, the company reported a pre-tax loss of GBP1.7m (US$2.2m), compared to a pre-tax profit of GBP3.9m in the year-ago period.

Total group revenue for the period was down 3.3% on the previous year to GBP64.5m, while like-for-like retail sales, including e-commerce were 6.9% lower.

E-commerce like-for-like sales for the first half, meanwhile, grew 9.5% on the prior year and now represent 12.7% of total sales.

Retail gross margin at 56.5% was 2.8% lower for the six month period, of which, the impact of a weaker sterling accounted for a -1.8% reduction. Overall gross margin rate was 2.3% lower at 58.5%.

"The first half trading performance was one of the most volatile for many years," said CEO Brian Brick. "We initially saw sales performance recover well following our previously highlighted early season stock shortages, and sales were generally ahead of expectation."

However, Brick said this came to an "abrupt end" when high street footfall dropped dramatically, impacted by the period of extremely hot weather and what he called the "widespread distraction" of England's success in the World Cup.

Combined, the two factors saw customer footfall reduce by 7% year-on-year and by up to 14% in its worst affected stores, Moss Bros says.

The retailer added, it believes it was negatively impacted by about GBP2.7m of retail store sales, which would have delivered GBP1.4m of gross profit.

"Although all retailers were impacted in some way, Menswear was specifically impacted negatively by the combination and longevity of these two external factors," Brick said. "The position was exacerbated by the distressed discounting of some competitors, although we have taken the decision to stand firm on pricing where we feel Moss Bros' product has a strong USP."

More positively, Brick said the early response to the 2018 autumn/winter ranges has been strong and the firm is well-stocked as it enters the new trading season.

"We remain agile in our trading approach and we will maximise our share of the men's formalwear market by continuing to invest in the strength of our brand, our expertise and the breadth of our product offer, both in-store and online. In addition, we will be increasing the presence of a selected number of our sub-brands on major third-party retail marketplaces," he adds.

Yet Brick said he remains "acutely aware" that the highly competitive retail landscape is set to continue, alongside an unpredictable economic back-drop and increasing cost headwinds.

As a result, he said Moss Bros has reviewed its expectations for the second half of the year, noting that while short-term cost cutting would make the group more certain of mitigating the footfall related gross profit shortfall and therefore hitting the market's expectations, it feels 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," he explains.

This decision to continue to invest, Moss Bros says, means the group is still on-track to deliver an operating profit before adjusting items, but materially lower than current market expectation of GBP2.3m.

Moss Bros not suited to hot weather

Emily Salter, retail analyst at GlobalData, notes that despite Moss Bros resolving the stock issues that hampered sales in the first quarter, it has continued to struggle with declining footfall, for which it blames the hot summer and England's success in the World Cup.

"Online sales were the only area of the business to experience growth, but positive digital performance was not enough to bolster total revenue or soften its GBP3.7m decline in operating profit," she says. 

Despite its continued growth in online sales, Salter says stores remain important to customers as fit and quality are imperative in the formalwear market. "Store refurbishments are necessary to drive footfall and sales in underperforming stores, but the retailer must carefully consider opening any further stores given the slump in physical retail sales," she explains.

Meanwhile, Moss Bros' sales were also affected by its pricing proposition, as many of its competitors, such as House of Fraser and Debenhams, embarked on heavy discounting to try to fend off their own troubles, while Moss Bros stood firm on its prices.

"Moss Bros must ensure that its strategy is suited to evolving customer demand as hire sales and demand for morningwear continue to decline. Crucial to this is Moss Bros' custom tailoring service launched in 2016, 'Tailor Me', as it gives the retailer the ability to adapt to new trends, enabling it to better compete as other retailers branch into more trend-led formalwear," Salter concludes.