Moss Bros sees FY loss in line with market views as discounting hits margins

11th Jan 2019 09:25

(Sharecast News) - Moss Bros said on Friday that it expects to make a full-year loss in line with market forecasts as margins are getting squeezed by discounting.In an update for the 23 weeks to 5 January, the company said total sales were up 0.6% from the previous year but down 1% on a like-for-like basis. Total retail sales including e-commerce and wholesale, which made up 91% of group revenue in the period, were up 1.9% and 0.1% higher on an LFL basis.E-commerce sales rose 27.8%, while hire sales were down 11.2% on a like-for-like basis.Trading gross margins for the 23-week period fell by around 2.6% from the previous year due to increased promotional activity, particularly from late October onwards.Moss Bros said total sales improved year-on-year despite the challenging consumer backdrop and there has been an improving trend in the fourth quarter. However, the period after Black Friday required deeper discounting than planned in order for the group to remain competitive, which impacted gross margin rates.The company said it expects to deliver an adjusted loss in line with current revised market consensus of £0.6m.Chief executive officer Brian Brick said: "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. 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."Despite the improving trend in performance, we anticipate the period ahead will continue to be extremely challenging, as a result of the uncertain consumer environment, wider political backdrop and the significant cost headwinds that we continue to face from a weaker pound and further increases in business rates and employee related costs."At 0920 GMT, the shares were up 3.3% to 27.06p.Peel Hunt said Christmas sales were better than feared. It pointed out that management's expectation of a £0.6m loss is better than its forecast of £1.4m."With weak comparatives from prior year availability issues ahead, Moss has an opportunity to set out a stronger H1 in the new financial year."We leave our 2020 estimate unchanged at this stage to reflect the uncertain consumer backdrop, but believe this should be a number to beat. 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."