Mosaic Brands share price crashes on FY20 results

The Mosaic Brands Ltd (ASX: MOZ) share price crashed a whopping 21.32% earlier today following the release of its FY20 results. The company owns fashion retailers Noni B, Rivers, Rockmans and Katies.

FY20 results

Mosaic Brands announced an underlying loss before interest, tax, depreciation and amortisation (EBTIDA) of $45.8 million for FY20. It includes a provision for occupancy costs of $49 million. This could be lower as negotiations with landlords are ongoing.

The result is before a non-cash impairment of $113.5 million relating to brand names, goodwill and right of use assets.

Additionally, earnings have been materially impacted by the recent bushfires and the coronavirus pandemic. 

However, Mosaic Brands is experiencing strong and accelerating online digital department store sales of $93.7 million. In 2H20, online sales growth was 35.9% and this trend continued into July with 40% sales growth. 

What does this mean for the retail rental market

Mosaic Brands CEO Scott Evans said Australia’s retail rental market had not just been paused because of the pandemic – it was “fundamentally changed”. He went on to say:

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.

The FY20 results follow reports of Scentre Group’s (ASX: SCG) Westfield locking out Noni B stores due to an ongoing rent dispute induced by the coronavirus pandemic. 

As a result, Mosaic Brands is continuing its online strategy by investing in its online digital department store strategy which saw growth in total digital sales to $93.7 million. 

Additionally, Mosaic’s acquisition of a 50.1% interest in Ezibuy has made progress in its turnaround plans including reducing costs and improving inventory. It will review options regarding the remaining 49.9% over the coming months due to the strategic benefits it brings.

Outlook for the Mosaic share price

Traffic and sales in July 2020 remain substantially below the prior year. However, recent actions and focus on margin have delivered comparable store margin growth for the month. Additionally, a further $18 million in savings is expected to be realised, net of Jobkeeper benefits. 

Despite the challenges, the company has remained optimistic with the group positioned to return to sustainable profitability in FY21, subject to no more material disruptions caused by the pandemic. This return will hopefully be reflected in the Mosaic share price, which has a long way to climb after today’s crash. The Mosaic share price is trading at 0.54 cents at the time of writing, a 19.85% decline.

Understandly, the board has decided not to declare a dividend for the financial year.

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Motley Fool contributor Matthew Donald owns shares of Scentre Group. The Motley Fool Australia has recommended Scentre Group. 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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