Today I’m asking a very simple question: should investors looking for hot dip buys snap up Moss Bros Group (LSE: MOSB) today? The suiter-and-booter’s been carried lower in recent weeks and struck its cheapest since 2009 in early October.
Moss Bros’s share price misfortune isn’t a new phenomenon, though. The company has shed more than four-fifths (around 85%, to be exact) of its value in the past three years, a drop that has reflected the broad slowdown in the UK retail sector.
Latest trading details in September again underlined this tough trading environment. While like-for-like revenues at the firm’s retail division rose 2.9% in the six months to July 27, corresponding revenues at its hire business continued to tank and these were down 14.7% year-on-year. Consequently total like-for-like sales growth was restricted to a meagre 0.4%.
Good news, bad news
On the plus side, Moss Bros saw like-for-like sales at its bricks-and-mortar stores finally move back into growth in the first half, up 0.6% from a year earlier. This prompted much cheer from its investors and hopes that the retailer could finally be back in the growth business after years of severe strain.
Could this be the start of a brilliant profits recovery? I believe the answer is a resounding no, I’m afraid. Group gross margins still dropped one percentage point to 57.5% in the first half because of “an increase in lower-margin e-commerce and marketplace [or third-party] sales” at its retail division and “and a reduction in higher gross profit Hire sales.” And as a result, the company swung to an adjusted pre-tax loss of £1.1m from a £200,000 profit in the prior first fiscal half.
This was not the only cause for concern. Reflecting the “ongoing volatile trading environment”, Moss Bros decided to bin the idea of paying out an interim dividend (it had forked out a 1.5p per share reward a year earlier) as well.
Structural shifts
And it’s hard to see how Moss Bros will be able to snap back into profit soon. Sure, some may celebrate the efforts that the smart fashion specialist has undertaken to improve its product lines (its newly-launched ‘eco suit’ which is made predominantly from recycled plastic bottles has certainly grabbed plenty of plaudits).
But it’s hard to see how this will translate into any meaningful sales growth as difficult economic conditions crumple shopper spending power. It’s likely that Moss Bros will have to keep engaging in profits-sapping discounting to keep pulling shoppers through its physical and virtual doors.
Further, it’s debatable as to whether the business can expect sales to improve over the long term give changing fashion trends. Indeed, a recent study from Kantar Worldpanel suggested that annual suit sales have dropped by around £100m per year since 2015 amid the growth in casual dress codes in British workplaces.
It’s quite possible that Moss Bros has had its day, then. City analysts certainly don’t expect it to break back into earnings growth any time soon and with the retailer also offering nothing in the form of a dividend, I see little reason to buy the business today.
