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Why shares in this ASX retailer have crashed 13% today

Mosaic Brands Ltd (ASX: MOZ) shares have crashed more than 13% this morning as the fashion retailer unveiled an uncertain full year outlook.

In January, the retailer released a trading update warning of difficult conditions. Sales in November and December, a critical sales period for the group, were significantly impacted by the bushfire tragedy with comparable sales for the half 8% down on the prior year.

Mosaic’s half year results

In its first half results released today, Mosaic reported a 10.9% decrease in revenue, which declined to $413.8 million from $464.4 million in 1HFY19. The bushfire crisis directly affected 20% (or 276) of the group’s stores, which impacted its overall performance from November onwards. 

Online sales now account for 10.1% of total revenue, up from 9%. Gross margin increased to 60% from 57%, in accordance with the group’s focus on prioritising gross margin over sales during the period. 

Mosaic reported earnings before interest tax depreciation and amortisation (EBITDA) of $32 million, up 26% on the prior corresponding period, but $1 million below Mosaic’s January forecast. Underlying EBITDA before transaction and restructuring costs was $32.7 million, up 12% on 1HFY19 and in line with the January forecast. 

Richard Facioni, chair of Mosaic Brands, said, “Mosaic Brands’ substantial improvements in margin and EBITDA, notwithstanding the external factors which have affected and continue to affect the Group, were a great achievement, demonstrating the group’s resilience and potential when the environment stabilizes.”

Underlying profit before tax was $22 million, up 59.9% from $13.8 million in 1HFY19. Net profit after tax (NPAT) increased 47.5% to $14.1 million from $9.5 million. The board has opted to postpone its declaration of an interim dividend until the impact of coronavirus has been clarified. Assuming a timely resolution with minimal impact, it is expected an interim dividend payment consistent with last year’s will be declared. 

Outlook

Mosaic reported that while the impact of the bushfires on consumer confidence and sales, particularly in regional areas, continued throughout January, demand has improved over recent weeks. Nonetheless Mosaic now faces a new challenge with potential disruption to its China supply chain caused by the coronavirus outbreak. 

The outbreak has caused manufacturing and shipping delays with minor impacts on February deliveries. The group is working with suppliers to ensure minimal delays on winter product. If delays prove material, sales during the early winter season, including the key Mother’s Day period, could be affected. 

The first half result combined with continued uncertainty mean that Mosaic is likely to face a material shortfall to previously advised market consensus of full year EBITDA of $75 million. The board believes it would be unhelpful to provide guidance on full year results until there is greater clarity. Further announcements will be made on the expected full year result and potential payment of an interim dividend when the extent of any supply chain disruption is clear. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Kate O'Brien