Moss Bros shares in fresh collapse

A second profits warning of 2018 guarantees Moss Bros (MOSB) a place alongside Carpetright (CPR) and Mothercare (MTC) in today’s headlines chronicling the woes of the high street.

Like all retail chains, the suit business has struggled in the face of consumer caution and the short-term impact of snow on high street footfall.

But there are factors that set Moss Bros apart from the rest, even if those reasons were not sufficient to spare the company another 20% off its share price today.

Supply chain issues are at the heart of the company’s recent trading difficulties, having decided to consolidate its product sourcing in the wake of the Brexit vote in 2016 and the subsequent sharp fall in the value of the pound.

It appears that problems with some suppliers have caused a stock shortfall across all channels, which Moss thinks will last until late Spring.

As a result of this and the cautious consumer environment, profits for the year to January 2019 will be materially lower than market expectations. Accordingly, broker Peel Hunt has cut its 2019 profits forecast to £2.3 million from £6.2 million, with earnings per share (EPS) down to 1.8p from 4.8p.

Source: interactive investor             Past performance is not a guide to future performance

The most significant change, though, concerns the Moss dividend, which has been one of the biggest selling points for investors after steady increases since 2014.

Whilst the company continues to boast a strong balance sheet, it will cut the full-year divi to 4p when 2018 financial results are announced next Tuesday.

This “prudent approach” comes as Moss adapts its dividend policy so that it is able to fully cover future dividends with profits in full-year 2020/21 and beyond.

Peel Hunt, which had previously forecast a dividend of 6.49p, downgraded its recommendation on Moss from ‘buy’ to ‘hold’ in the wake of the move. However, analyst John Stevenson noted: “Stores are profitable and the average time to end of lease/break clause is 37 months.

“The issue here has been largely down to stock availability rather than online disintermediation or consumer collapse and Moss retains a strong balance sheet.”

Moss shares are now at their lowest level in almost six years, having also fallen sharply in January following a post-Christmas profits warning.

Despite this, long-time CEO Brian Brick insists that the company remains well placed with a niche position on the high street.

He added today: “I am confident that the availability issues are well on track to being resolved and the margin benefits from the consolidation will flow through.”

The situation at Mothercare and Carpetright is far more grave, although the mother and baby products retailer did see an 8% rise in its shares today after saying that talks with lenders were “progressing constructively”.

The banks have agreed to defer the testing of financial covenants due on Saturday, with Mothercare hoping to conclude discussions on its lending terms by the time of annual results on May 17. The company suffered an awful Christmas, with like-for-like sales down by 7.2%.

Source: interactive investor          Past performance is not a guide to future performance

Carpetright is also reliant on the support of its banks after recently downgrading profits for a second time in 2018. Today, its boss Wilf Walsh said the company was exploring plans to rationalise its property portfolio through a Company Voluntary Arrangement. It also intends to raise between £40 million and £60 million through an equity issue.

Walsh said the “aggressive store opening strategy” pursued by the company’s previous leadership has left Carpetright burdened with an oversized property estate of too many poorly located stores on unsustainable rents.

He added: “The company has worked hard over recent years to address this legacy issue and reduce the size of its property estate, however many of these poor performing stores still have long leases to run, which has limited our ability to exit a meaningful number in the short-to-medium term.”

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