The owner of some of the country's most iconic fashion brands plans to close 300-500 stores for good within two years, with its CEO signalling the retail rental market is not just paused but is "fundamentally changed for the future".
Mosaic Brands (ASX: MOZ) has today reported a statutory loss of $170.36 million for FY20, compared to an $8.2 million profit in the previous year when it traded as Noni B Group.
Noni B is one of many brands in the company's portfolio that have been hit hard by the COVID-19 pandemic, with others including Rockmans, Katies, Millers, Rivers, Autograph, Crossroads and W.Lane.
The group's management made the tough call to close all its 1,400 stores in late March, and whilst shopfronts have started to open up with the exception of Melbourne, a large percentage of shutdowns will become permanent.
"The retail rental market in Australia is not paused because of the pandemic - it is fundamentally changed for the future," says managing director and CEO Scott Evans.
"Some though not all landlords accept that reality, so while exact locations and numbers are to be determined, the Group anticipates potentially 300-500 store closures over the coming 12-24 months.
"Shuttered stores work for no one so we aim to minimise closures, but not on uncommercial terms."
For the financial year the company's revenue only dropped 16.5 per cent to $737 million, but it was a $113.5 million impairment on brand names, goodwill and right of use assets that bit into the bottom line.
"Today's result does not reflect the consistent growth the Group has achieved over the past four years, nor does it reflect our circa 6,000 strong team's hard work and commitment during FY20," says Evans.
"The first third of the financial year saw the business perform solidly. The acquisition of the ex-SFG brands delivered comparable store sales and margin growth, and we were forecasting EBITDA of $75 million for FY20.
"That forecast was utterly derailed, first by the devastating bushfires which directly impacted 20 per cent of our store portfolio over the Christmas period, then by COVID-19 which saw us close all 1,333 stores for 9 ½ weeks including the peak Mothers' Day trading period."
Like most retailers Mosaic Brands has seen an uplift in online sales, but the increase over the year was not dramatic at 14.7 per cent to reach $93. 7 million - around 12 per cent of total revenue.
However, the online sales growth rate was significantly faster in the second half at 35.9 per cent, and in July it was higher still at 40 per cent across Mosaic's nine digital department stores.
The Group closed June with over 150,000 stock keeping units (SKUs) available online, spanning 14 categories.
Since Mosaic's acquisition of a 50.1 per cent interest on 28 October, EziBuy has made solid progress with its turnaround plans including reducing its cost of doing business and improving its inventory holdings. The group will continue to review its option to buy the remainder of EziBuy over the coming months.
"There is no roadmap to navigate these circumstances, but our operational priorities have been ensuring team and customer safety, reducing inventory and maintaining a strong cash position. This has allowed us to reshape Mosaic to take advantage of the fundamental changes happening in retail," says Evans.
Chairman Richard Facioni highlights Mosaic Brands was one of the first major national retailers to temporarily close stores during Stage 3 lockdowns.
"Many of our customers and team members are in the most vulnerable segment that COVID-19 attacks. Keeping hundreds of stores open longer in a key trading period would have been fiscally sound but completely against our commitment to putting our team and customers first," he says.
"We strongly believe that in the longer term this demographic will play a key role in retail as the majority are not of the JobKeeper generation and are more likely to return to spending as and when the virus recedes.
"The Board and I also recognise the ongoing commitment of our 6,000 Mosaic team members throughout what has been an unprecedented 12 month period and acknowledge the impact potential store closures will have on them in tough economic times."
Facioni highlights that although traffic and sales in July 2020 remained substantially below the prior year, the group's rental actions and its continued focus on margin have encouragingly delivered comparable store margin growth for the month.
In addition, cost of doing business initiatives are expected to realise a further $18 million in savings throughout the year, net of JobKeeper benefits.
He said recent store closures in Victoria and New Zealand, along with the subsequent subdued sentiment across other Australian states, have been challenging in August. But he still believes Mosaic is well positioned to return to sustainable profitability in FY21, subject to no further material disruptions to operations due to the pandemic.
To put today's result into context, the loss is around 2.6 times Mosaic's market capitalisation. The company's total debt has also ballooned over the course of FY20, rising almost three-fold to $86.5 million.
However, $14.16 million of this debt is for a JobKeeper bridging facility that is paid monthly once government funds are received. It also includes a $39.95 million working capital facility and a $20 million long-term facility.
MOZ shares were down 11 per cent to $0.605 each at 11:30am AEST.
Initially published at 11am AEST on 25 August 2020, updated at 11:30am.
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