Owner of Katies, Noni B to raise capital after return to profit

Mosaic Brands (ASX: MOZ) has entered a trading halt this morning as it gears up to announce a capital raise, following a return to profitability in FY21 for the group behind such brands as Katies, Noni B, Autograph, Crossroads and Millers.

Yesterday the company hit its financial targets in line with previous forecasts, with an EBITDA of $48 million compared to a $45 million loss in FY20.

The result does not include the results for New Zealand-based e-commerce clothing retailer EziBuy, in which Mosaic has a shareholding and which also returned to profitability with EBITDA of $3.7 million after two years of losses.

Mosaic - also responsible for brands Millers, Rivers, Rockmans and W.Lane - saw its sales decline by 10 per cent during the period to $588 million, but an improvement of margins led to a better bottom line.

Online sales grew by 19 per cent to $111.4 million and now also represent 19 per cent of total revenue. This was achieved partly thanks to an expanded retail offering, with the number of online offerings growing 10-fold to 1.5 million stock keeping units (SKUs).

"Notwithstanding significant ongoing disruptions to our business throughout the year, including numerous lockdowns and store closures, we are incredibly pleased with the results we have achieved and the return to profitability due to the actions we took to reset the entire group for the future," Mosaic Brands CEO Scott Evans said.

"The benefits of those actions became evident in the fourth quarter, which delivered our second most profitable Q4 on record with comparable sales growth of 27.9 per cent and comparable margin growth of 133 per cent, against a backdrop of subdued sentiment amongst our core customer group due to COVID-19," he said.

Evans said approximately 200,000 in-store only customers moved to also shop online, and the group acquired 200,000 new online only customers as a result of its expanded category and product ranges.

"We expect this trend to continue and this underpins our focus for FY22, being big stores, big brands, and an even bigger online range to meet our customers’ shifting purchasing behaviour."

Nonetheless, Mosaic's management is eager to set up a buffer through a strengthened balance sheet, given the disruption to momentum over the past two months due to widespread lockdowns. The trading halt in anticipation of the capital raising announcement is expected to be in place until no later than the start of trading on 3 September.

Almost all stores across the portfolio have experienced restrictions or full lockdowns in some form during this period.

However online sales continue to accelerate by delivering 23 per cent growth in the first eight weeks of FY22, and comparable store sales are down just 8 per cent despite the impact of COVID.

The group emphasises it is confident that as lockdowns become less prevalent in the coming weeks and months, it will see a resumption of the fourth quarter growth trend and a profitable FY22.

Chairman Richard Facioni acknowledged the current challenging period across the country but said Mosaic would welcome a unified approach to Australia safely opening up.

“For the entire retail sector, it’s critical that by late October, stores nationally are able to open and be trading again. From supply chain logistics to consumer and national sentiment, ongoing internal borders beyond this timeframe will leave lasting scars," Facioni said.

"As one of the largest national retailers in the country employing team members in metropolitan and regional areas, we also want them to get back to work as safely as possible and as quickly as possible - right across Australia."