'Recovery continues': Why this ASX retail share surged 35% in morning trade

How did the clothing retailer perform for the final quarter of FY22? Let's take a look.

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Key points

  • Mosaic shares rocketed by almost 35% this morning after the company released a trading update
  • The clothing retailer reported an uptick in trading conditions despite external market headwinds
  • Management is projecting the business to become profitable again in FY23

The Mosaic Brands Ltd (ASX: MOZ) share price is soaring today after the company delivered its fourth-quarter trading update.

Within the first hour of market open, the specialty fashion retailer's shares hit an intraday high of 29 cents — a gain of almost 35% on Thursday's closing price.

However, some profit taking from investors has led its shares to retreat to 23 cents at the time of writing, up 6.98% on the day.

What did Mosaic report for Q4 FY22?

Here's a brief recap of how the company performed for the three months that ended 3 July 2022.

  • Operating cash inflow of $57 million, up by $4 million on Q4 FY21
  • Year-to-date cash inflow of $44.6 million
  • Online sales grew to $223 million, up 7% on Q4 FY21 – representing 39% of group sales
  • Management continues to focus on cost and stock inventory
  • Closing net cash position estimated to be at $9.5 million

What happened during the quarter?

In a boost to the Mosaic share price, the ASX retail share stated that its "recovery from two years of restricted trading conditions continues".

This comes on the back of the ongoing COVID-19 impact as well as strong inflationary movements.

Nonetheless, the group's sales performance has improved week-on-week following weakened trading conditions early in the third quarter.

Mosaic is forecasting earnings before interest, taxes, depreciation and amortisation (EBITDA) to come in at a $16 million loss for FY22.

In addition, net cash is expected to be a positive $9.5 million – in line with the ordinary cash inflow cycles.

While retail headwinds are expected to continue into FY23, the group is seeing a return of its core customers week by week. In particular, June proved to be the strongest month of the second half.

The positive trend is also continuing into July.

With a clean stock position to maximise the year ahead, Mosaic is projecting a return to profitability in FY23.

It noted that "in an inflationary environment it is strongly positioned to achieve growth and accelerate its recovery".

Mosaic share price review

Since the start of 2022, the Mosaic share price has declined by more than 60%.

Strong market volatility and a gloomy economic outlook appear to have weighed down this ASX retail share this year.

Mosaic has a price-to-earnings (P/E) ratio of 4.86 and commands a market capitalisation of roughly $20.44 million.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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