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Moss Bros shares rise on 'better than feared' Christmas trading update

"Moss engaged in higher levels of promotional activity than normal, impacting gross margins, although the hit was less than we had feared, meaning the outcome for the year will be better than our recent pre-emptive downgrade," Peel Hunt said
Moss bros
The company expects the period ahead to be "extremely challenging"

Menswear retailer Moss Bros Group plc (LON:MOSB) expects to make a full year loss in line with market forecasts after discounting items more than it had planned over the key Christmas trading period.

The company said total sales in the 23 weeks to January 5 rose 0.6% compared to a year ago but fell 1.0% on a like-for-like basis.

Retail sales, including e-commerce and wholesale, grew 1.9% in the period or 0.1% on a like-for-like basis. E-commerce sales, which account for 16.2% of total revenue, increased 27.8%.

The suit-hire business – representing less than 10% of total revenue –continued to struggle with like-for-like sales down 11.2%.

Margins weaken on discounting 

Trading margins fell by 2.6% compared to a year ago following increased promotions, particularly from late October onwards.

"As I noted at the time of our interim results in September, we had already seen more intensive discounting from our competitors and this has continued throughout the period,” said chief executive Brian Brick.

“Having originally sought to resist discounting pressures, we too have found the need to adopt a more tactical, discount-led pricing stance across all retail channels.

READ: Moss Bros shares plunge as it cuts dividend by a quarter following “volatile” first half

"Whilst this proved successful in delivering top line sales growth, there has been an expected negative impact on gross margin rates, which ensured that the group managed the level of terminal stock.”

Uncertain outlook 

Brick said despite an improving performance, the company expects the period ahead to be “extremely challenging” amid subdued consumer spending, Brexit uncertainty and the “significant cost headwinds” that it continues to face from a weaker pound and further increases in business rates and employee-related costs.

He added that the group would use the weaker environment as an opportunity to “enhance our specialist market position and strengthen our core brand proposition, so we retain a sustainable point of differentiation”.

“We remain debt free, with a strong balance sheet and are confident in our ability to deliver enhanced returns to our shareholders over the longer term,” he said.

The group expects to end the 2018/19 financial year with cash of £10mln, compared to £17.5mln on 27 January 2018.

It predicts an adjusted loss of £0.6mln for the year, meeting the consensus forecast. 

Shares rise on 'better-than-feared trading' update

In morning trading, shares gained 3.2% to 27.06p as the trading update was not as bad as analysts had expected. 

"Moss engaged in higher levels of promotional activity than normal, impacting gross margins, although the hit was less than we had feared, meaning the outcome for the year will be better than our recent pre-emptive downgrade," Peel Hunt said, repeating a 'hold' rating on the stock.

"We’re not going to crow about the downgrade being less than feared, but we are encouraged that Moss has been able to drive a significant acceleration in online sales and demonstrate the relevance of the offer and the Brand and see the shares responding favourably to today’s update."

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