11th Apr 2007 07:01
Moss Bros Group PLC11 April 2007 MOSS BROS GROUP PLC Preliminary results for the year ended 27 January 2007 HEADLINES Financial • Pre-tax profit of £5.1m (Ly: £6.2m) • Like for like sales down 1.3% - after 5 years of growth • Gross profit percentage increased to 53.1% (Ly: 52.9%) • Proceeds and compensation from property disposals of £3.8m. Net property related gains of £1.7m • Average cash balance for the year up 15% with year-end cash balance of £16.6m (Ly: £17.7m) • Final dividend proposed of 1.30p (1.80p for the year, in line with last year) • Current trading: like for like retail sales in the first ten weeks of the new financial year down 1.0% Business Overview - strengthening the business • New distribution centre fully operational • New stock management and store point of sale IT system implemented • Eleven new stores opened during year • Eleven stores refitted and three stores relocated • Six loss making or non-core stores disposed of Unity Investments ehf • Unity Investments (beneficial owner of 28.5% of the Company's issued share capital) has reconfirmed its position as a long term investor supporting the Company's development • The Board welcomes the reconfirmation of this long term support and has decided to appoint two non-executive directors associated with Unity Investments Commenting on the results, Philip Mountford, Chief Executive, said: "The results are in line with previous guidance. The menswear market remainshighly competitive, and after five years of growth, the underlying revenue andoperating profit figures reflect a difficult year. A number of the steps havebeen taken during the year to strengthen the business, which also negativelyaffected performance in the period, although they will be positive in the longerterm. This was also a demanding year for our markets with the World Cup periodin the summer reducing profits by approximately £0.5m and the mild weather inthe second half affecting outerwear sales and reducing profits by approximately£0.8m. The Board welcomes the reconfirmation by Unity Investments of its long-termsupport for the business. The Board has decided to appoint two non-executivedirectors associated with Unity Investments to the Company's Board. This willhelp us accelerate the long term growth of the business both organically andthrough strategic development and thereby increase value for all Shareholders." For further information please contact: Moss Bros Group Plc: 07810 055 799Philip Mountford, Chief ExecutiveMichael Hitchcock, Finance Director Tulchan Communications: 0207 353 4200Andrew HonnorCelia Gordon Shute OVERVIEW Management is taking steps to respond to the increasingly competitive marketplace in which the Company is operating. During the year the Company has relocated its distribution centre to an up todate facility and has introduced a new IT system for both stock management andthe stores point of sale activity. The investment in both IT and supply chainwill allow improved stock control which should lead to a reduction in unplannedmarkdowns and subsequent improvement in gross margins. The new supply chaininfrastructure will give faster lead times on product which will allow thebusiness to trade more effectively. A programme has been undertaken to improve the store portfolio in order to makethe assets work harder for the Company. The performance of each store is beingevaluated and where necessary exited, relocated, rebranded or refitted to meetthis objective. During the year the business exited from six stores, whichgenerated significant cash inflow and established a much improved future tradingplatform. This generated cash has been reinvested into relocating stores tobetter pitches and rebranding stores from one fascia to another so as tomaximise the return from these sites. In particular the Moss stores have beenthe subject of a significant refit programme. As a result of encouraging salesgains post refit this programme will now be rolled out across the Moss storeportfolio. The target will be to undertake between 20-30 refits per year witheach store benefiting from modernisation, increased linear footage and generallybetter customer presentation. Beyond our existing store portfolio there are opportunities to continue therollout of both the Moss fascia as well as the Boss and Canali fascia. In totalthis year management envisages five further new stores openings, of which fourhave been identified. BUSINESS REVIEW STORES Mainstream This year, Moss has recorded a like for like sales decline of 3.3% but has seena 1.3% point retail gross margin increase on last year. These margin gains havebeen achieved through better sourcing as well as better full-price sell-through,providing the customer with the right branded goods at the right price. Expansion Plans Management believes that there are a further 80 locations within the UK whereMoss can trade profitably. Eight new Moss stores were opened during the year andthe strategy for 2007 plans for five further new store openings, of which fourhave been identified. The expansion strategy is to create 2,000 to 4,000 sq ft stores in suburbantowns, cities and other locations where the market place can support a Mossstore. Selection of these sites is determined by specific experience andresearch data. This includes continuing analysis of what drivescustomer-spending patterns, and takes into account regional variations andpreferences. Concept Stores and Refits During 2006 the new concept store was piloted and rolled out to stores in majortowns. Going into 2007, the lessons learned last year will be applied to theongoing refurbishment programme. This concept will also be used to refurbish theexisting city store portfolio. The concept takes the business forward in termsof visual and stock presentation, creating a bright, light, clean environmentwith the emphasis on lines and brands, enabling the consumer to shop in afriendly environment, with ease of product selection. The focus of the conceptis not only to provide an improved shopping environment but also to optimisetrading space and increase linear footage. This has enabled the business tooffer customers a wider choice of product mix and sizing architecture which hasseen sales per square foot increase by 7% within these stores and an increase inboth units per transaction of 12% and in average transaction value of 16%. The key priority is to attract new customers without alienating core consumers.The early indications from the performance of the seven refit stores which wereundertaken in 2006 are promising with, on average, a +10% uplift in salesagainst the average like for like sales movement over the same period. Moss will now roll out its new store concept to eleven stores this year. As wellas the main concept programme, the Company is also rolling out a refreshprogramme, which picks key elements of the new concept, ie: floor, fascia,freestanding fixtures, and introduce these into as many as 13 further stores. Factory Outlets The factory outlets enjoyed another strong year, with a like for like growth of1.0%, and a 1.4% point retail gross margin increase against last year. This hasbeen achieved through a clear strategy across the Moss fascia, which has allowedmargin-rich products to be brought in from suppliers. This has to date provedsuccessful and instrumental in current plans to expand the factory outletportfolio further. The new factory outlet concept has provided a 20% increase in linear footage,allowing increased product ranges to be held in the same space and to presentthe products in a much more attractive and customer-friendly environment.Further openings in 2007 are planned; three potential outlets have already beenidentified. Fashion Fashion has recorded a like for like sales increase of 1.7% and a 0.3% pointretail gross margin decrease against last year. The retail gross marginreduction is due to the sell-off of stock in the Beale and Inman store ahead ofits anticipated closure at the end of January. Excluding this, the fashionretail gross margin was in line with last year reflecting the gains achievedthrough better sourcing offset by price action needed to compete in a highlyprice competitive market. Cecil Gee The new concept store rollout programme has now reached six stores. These storeshave achieved a like for like sales growth of 4%. One benefit of being a multifascia retailer is the ability to re-brand one fascia with another. A strategicreview of the Gee store portfolio means that so far in 2007 one Gee store hasbeen re-branded Hugo Boss. Hugo Boss There are currently 13 Hugo Boss stores in the UK with Trafford Park opening inMarch 2006 and Meadowhall in September 2006. Management believes there areopportunities to expand the product range within shoes, sportswear andaccessories, forming part of the Hugo Boss strategy to create three clearlydefined brands - black, orange and green - which are targeted at differentsegments of the market and which attract fashion-focused customers as well asthe traditional branded consumer into the stores. Hugo Boss is one of the leading brands in the fashion world and the Companycontinues to refurbish and redesign the Hugo Boss stores to maintain this image.Two stores were refurbished in 2006 and a further two stores will be refurbishedin 2007. The Cecil Gee store in Brighton has been re-branded into a Hugo Bossstore since the year-end, as this will generate the best return for this retailsite. Canali The Company has the only franchise for Canali within the UK and, due to itssuccess over the last five years, has expanded the retail space of its Canalistore by 40% during the year to build on this success. The additional space hasenabled the business to grow the casual wear, shoes and accessory ranges, aswell as create a clearly defined luxury suiting room. The success of thisfranchise has led to the search for more sites in 2007. Hire As the market leader in the UK hire market, with an approximate market share of20%, Moss Bros Hire facilitated hire garments last year for in excess of 25,000weddings and fitted in excess of 130,000 customers for black-tie events. Thewedding market continues to be stable; although there has been a reporteddecrease in the number of weddings, there has been an increase in the number ofpeople wearing morning suits and in the size of wedding parties. There has alsobeen an increase in the number of university-related events, and in studentevents styled on the US school prom model. The Company has been focusing on maintaining its No 1 position in the hiremarket and still remains the only national chain to offer instant dress wearhire. To ensure supply meets demand, there has been a substantial investment in stock.Last year alone, investment reached £1.8m, and this is expected to exceed £6.0mover the next four years. There is now a wide range of accoutrements, includingwhite suits, Nehru collars, velvet tailoring, and highland dress. The Moss BrosHire philosophy is to invest in the best and newest products, while maintainingits leading position in the more traditional lines. Expansion into moreflamboyant and colourful lines, in pursuit of the so-called 'celebrity' image,sits alongside fashionable black-tie thinking at Moss Bros Hire to provide aone-stop shop for hire wear. This year sees the introduction of the brownmorning suit, which clearly sets Moss Bros Hire out as the leaders in fashion inthe hire market. INTERNET SHOPPING AND MAIL ORDER Internet Shopping and Mail Order are significant areas of growth for all retailgenerally. The website and catalogue offer is the subject of extensive work andis being revamped to offer customers another option when buying quality,fashionable branded menswear at value for money prices. DISTRIBUTION CENTRE Having moved the distribution centre to its new location, the business has putinto place better working practices and is driving efficiencies. This presentsan opportunity for the future as the growth of the business brings increasedproduct flow through the operation, improves productivity and reduces unit costsin the distribution centre. IMPROVING OPERATIONAL EFFICIENCY Developing People It has been a key part of the Company's strategy for the past two years todevelop people within the business. To this end, an in-house selling academy hasbeen running for two years to develop both the technical understanding ofproduct and the selling skills of sales consultants and managers. Buyers andmerchandisers from the business are spending time in stores helping sales staffto understand the product attributes so that they in turn can provide the besttotal customer buying experience. Units per Transaction This philosophy has allowed the business to train over 75% of its salesconsultants and managers over the past two years, and has resulted in anincrease of 6% in units-per-transaction. This increase is one of the biggest keydrivers in in-store services, resulting in improved customer satisfaction andbetter ability to capitalise on individual sales and is recognised as a keyopportunity to grow sales. It further benefits staff, who are incentivised onthe basis of numbers of units sold, as well as on the level of sales. The Company does not encourage a hard-sell approach, but recognises thatcustomers appreciate staff that are able to explain both the technical andcommercial aspects of products and to make suggestions, where appropriate,concerning complementary purchases. Senior Management Training and Development The Company continues to develop key people through a course of structuredaway-days where senior managers are encouraged to participate in training, whichfamiliarises them with business unit and overall Company strategies. RISKS & UNCERTAINTIES Cash With pressure on operating costs, particularly occupancy costs and buying riskthe need to monitor the on-going cash position of the business is significant.The cash balance is monitored daily and this has succeeded in increasing themonthly average cash balance by £1.0m to £7.5m. The year-end cash balance is ahealthy £16.6m. Staff Hiring and Retention In a fast moving sector such as retail there is a need to ensure the bestpersonnel are attracted to the business and, having attracted them, they areretained. Management is conscious of the need to offer the right training, workenvironment and remuneration package to achieve this aim. There is on-goingcommunication at senior management level to present the right balance of staffrewards to ensure that the business has the best talent available. Continuity of Supply Sales growth is dependent on the continued supply of fashionable product atregular intervals. The business invests considerable time in identifying andconducting continual due diligence into its new and existing suppliers to ensurethis continued supply chain. Demand forecasting allows the right product to bein the stores at the right time in the right quantity. The new distributioncentre is introducing working practices that provide a greater degree ofefficiency both from a cost and process point of view. Property The business has a portfolio of property operating leases, which needs to becarefully and proactively managed to minimise any long-term risk to thebusiness. FINANCIAL REVIEW 2006/2007TRADING RESULTS 1st half 2nd half Full year Sales v last year (like for like)* -0.7% -1.9% -1.3%% gross profit 53.5% 52.7% 53.1%% gross profit v last year +0.4% -0.1% +0.2%Profit before taxation £0.8m £4.3m £5.1m *Like for like represents sales for stores open during the current and priorfinancial years This is the first year in five years that the profit has fallen back from theprevious year and reflects both the unusual year for menswear retailing and anumber of significant internal events, which, whilst being important for thefuture, were disruptive to the business. Pre-tax profit for the year ended 27 January 2007 for Moss Bros Group Plc was£5.1m including net property related gains of £1.7m, against £6.2m last year. Like for like sales fell back 1.3%, although the gross margin percentagecontinued to increase, up 0.2 percentage points from 52.9% to 53.1%. The Company has a healthy balance sheet with no debt and a strong cash balance.This has been achieved through strict working capital management and rigorouscash control. SALES Sales within fashion increased by 1.6% on last year; this was supported by asales growth of 12.3% in Boss and 11.4% in Canali. The disappointing sales inGee for the same period attributed to poor product selection resulted in stockneeding to be cleared at reduced prices. The move this year back to smart casualand a much-improved stock package will help to reverse the decline in salesexperienced last year. Whilst sales from Moss were generally disappointing the business did see growthin the demand for higher end product, which is encouraging for the future.Despite the increasingly competitive market place in which Moss trades thereremain opportunities to increase the higher-end product ranges which will notonly give sales growth but increased margin. Sales within Factory Outletscontinued to grow during the year reinforcing the continued importance of thisroute to market. OPERATING COSTS Administrative expenses and shop selling and marketing costs ('operating costs')increased by 3.1% in the year. After stripping out new and closed stores, likefor like operating costs in the year increased by 2.7%, despite like for likeoccupancy costs including rent, rates, service charge and utilities increasing4.4% in the year. Continually improving and monitoring management within storeshas enabled the Company to control payroll costs with like for like labour costsup only 0.7% (including the effect of the increase in minimum wage) and totalcontrollable costs are down 0.1%. During the year, the Company chose to exit strategically from a number ofstores, which, alongside some property asset impairments, produced a netproperty related gain of £1.7m. TAXATION The Company has utilised all its tax losses brought forward. The effective taxrate is 28.7%, 32.9% after removing items relating to the prior year. EARNINGS PER SHARE AND DIVIDEND Earnings per share: 3.92 pence per share compared to 4.62 pence per share lastyear. The Board is recommending a final dividend of 1.30 pence per share which, inaddition to the interim dividend of 0.50 pence per share paid in November,maintain the dividend that was paid last year. The final dividend will be paidon 14 June 2007 to shareholders on the register at the close of business on 11May 2007. INVESTMENT Capital expenditure in the year was £9.2m and depreciation was £4.8m. Thisincluded the opening of eleven new stores and the refitting of 11 stores acrossall fascias. It also included £2.2m invested in the new distribution centre.There was an initial net receipt of £1.0m received from the London DevelopmentAgency in respect of their impending compulsory purchase order offsetting theinvestment in the new distribution centre. £1.8m was invested in Hire garmentstock. CASH The underlying cash position continued to improve despite a lower year-endbalance. The average cash balance throughout the year was 15% up on last year,equating to circa £7.5m, with the year-end cash balance standing at £16.6m,£1.1m down on last year. INVENTORY Terminal inventory continued to be successfully cleared during the year with thetotal closing retail inventory position up 11% against an increase in retailspace of 6%. This gap represents ensuring the right stock was in the businessfor the start of the Spring/Summer season and led to earlier deliveries of stockas the year-end approached. TRADE AND OTHER PAYABLES Trade and other payables increased by £2.2m. This was largely attributable totrade payables and the early delivery of Spring/Summer stock into the business,partially offset by the utilisation of cash to maximise discounts. Further workis taking place to align the terms and conditions of our suppliers to those ofthe Company's peers in the retail fashion sector, where it is felt the businesshas fallen behind. Print resolution images are available for the media to view and download free ofcharge from http://www.vismedia.co.uk Consolidated Income Statement For the 52 weeks ended 27 January 2007 52 weeks to 52 weeks to 27 January 2007 8 January 2006 Audited Audited £'000 £'000--------------------------------------------------------------------------------Revenue 133,876 132,813Cost of sales (62,800) (62,552)--------------------------------------------------------------------------------Gross Profit 71,076 70,261 Administrative expenses (4,518) (5,189)Shops selling and marketing costs (61,804) (59,170)--------------------------------------------------------------------------------Operating Profit 4,754 5,902 Financial income 354 305--------------------------------------------------------------------------------Profit before Taxation 5,108 6,207 Taxation (1,468) (1,958)--------------------------------------------------------------------------------Profit for the Year 3,640 4,249--------------------------------------------------------------------------------Basic earnings per share 3.92p 4.62pDiluted earnings per share 3.87p 4.54p--------------------------------------------------------------------------------All revenue and profits relate to the continuing operations of the Group. Consolidated Statement of Recognised Income and ExpenseFor the 52 weeks ended 27 January 2007 52 weeks to 52 weeks to 27 January 2007 28 January 2006 Audited Audited £'000 £'000 -------------------------------------------------------------------------------Profit for the Year Attributable to EquityHolders of the Parent 3,640 4,249-------------------------------------------------------------------------------- Consolidated Balance Sheet As at 27 January 2007 27 January 2007 28 January 2006 Audited Audited £'000 £'000 -------------------------------------------------------------------------------Assets Property, plant and equipment 23,989 21,059Lease prepayments 2,812 2,919--------------------------------------------------------------------------------Total Non-Current Assets 26,801 23,978--------------------------------------------------------------------------------Inventories 24,381 21,704Trade and other receivables 7,491 7,310Corporation tax recoverable 213 -Cash and cash equivalents 16,590 17,655--------------------------------------------------------------------------------Total Current Assets 48,675 46,669--------------------------------------------------------------------------------Total Assets 75,476 70,647-------------------------------------------------------------------------------- Equity Issued capital 4,678 4,652Share premium account 8,400 8,316Retained earnings 39,766 38,320--------------------------------------------------------------------------------Total Equity 52,844 51,288-------------------------------------------------------------------------------- Liabilities Other payables 1,337 1,249Deferred tax liabilities 3,454 2,385--------------------------------------------------------------------------------Total Non-Current Liabilities 4,791 3,634-------------------------------------------------------------------------------- Trade and other payables 17,841 15,725--------------------------------------------------------------------------------Total Current Liabilities 17,841 15,725--------------------------------------------------------------------------------Total Liabilities 22,632 19,359--------------------------------------------------------------------------------Total Equity and Liabilities 75,476 70,647-------------------------------------------------------------------------------- Consolidated Statement of Cash Flows For the 52 weeks ended 27 January 2007 52 weeks to 52 weeks to 27 January 2007 28 January 2006 Audited Audited £'000 £'000--------------------------------------------------------------------------------Cashflows from Operating Activities Profit before taxation 5,108 6,207 Adjustments for: Profit on sale of non-current assets (2,189) (31)Finance income (354) (305)Depreciation 4,829 4,233Equity settled share-based payment(write-back)/expense (211) 125Increase in trade and other receivable (181) (1,270)Increase in inventories (2,677) (347)Increase/(decrease) in trade and other payables 2,179 (2,046)Tax paid (587) (25)--------------------------------------------------------------------------------Net Cash from Operating Activities 5,917 6,541--------------------------------------------------------------------------------Cashflows from Investing Activities Proceeds from sale of non-current assets 2,758 100Proceeds from sale of investments - 90Interest received 354 305Compensation for acquisition of non-current assets 1,027 -Acquisition of non-current assets (9,248) (5,160)--------------------------------------------------------------------------------Net Cash from Investing Activities (5,109) (4,665)--------------------------------------------------------------------------------Cashflows from Financing Activities--------------------------------------------------------------------------------Proceeds from the issue of share capital 20 337Purchase of own shares (218) -Dividends paid (1,675) (1,373)--------------------------------------------------------------------------------Net Cash from Financing Activities (1,873) (1,036)--------------------------------------------------------------------------------Net(decrease)/increase in cash and cash equivalents (1,065) 840Cash and cash equivalents at beginning of year 17,655 16,815--------------------------------------------------------------------------------Cash and cash equivalents at end of year 16,590 17,655-------------------------------------------------------------------------------- Notes to the Preliminary ResultsFor the 52 weeks ended 27 January 2007 1. Accounting policies adopted are consistent with those adopted in the financial statements for the 52 weeks ended 28 January 2006. These can be seen at www.mossbros.co.uk. 2. Statement of Changes in Equity Year ended 27 Year ended 28 January 2007 January 2006 £'000 £'000--------------------------------------------------------------------------------Total Equity at beginning of year 51,288 47,860Profit for the year 3,640 4,249Dividends paid (1,675) (1,373)Issue of shares 20 337Purchase of own shares (218) -Proceeds from QUEST - 90Share based payments (211) 125--------------------------------------------------------------------------------Net movement equity during the year 1,556 3,428--------------------------------------------------------------------------------Total equity at end of year 52,844 51,288-------------------------------------------------------------------------------- 3. Basic earnings per ordinary share are based on the weighted average of 92,895,454 (2006: 91,894,428) ordinary shares in issue during the year (which excludes the shares held by the Quest and the shares held by a third party on behalf of the Company) and are calculated by reference to the profit attributable to shareholders of £3,640,000 (2006: £4,249,000). Diluted earnings per ordinary share are based upon the weighted average of 93,939,019 (2006:93,555,869) ordinary shares, which takes into account share options outstanding and are calculated by reference to the profit attributable to shareholders as stated above. 4. The figures for the year ended 28 January 2006 and for the year ended 27 January 2007 are extracted from the statutory accounts for the year ended 27 January 2007, which have been reported on by the Company's auditors but not delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under section 237(2) or 237(3) of the Companies Act 1985. 5. The Board has resolved to declare a year-end dividend of 1.30 pence per share (2006: 1.30 pence per share). 6. Like for like comparatives remove the impact of net store openings. 7. Net property related gains/(losses) comprise: Year ended 27 Year ended 28 January 2007 January 2006 £'000 £'000 -------------------------------------------------------------------------------Profit on disposalof property, plant and equipment 2,189 31Accelerated depreciation-former distribution centre (290) -Write-off of receivable in respect of store move costs (135) -Impairment charge (included within depreciation) (61) (70)--------------------------------------------------------------------------------Net property related gains/(losses) 1,703 (39)-------------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
MOSB.L