Stock shortage after supplier consolidation means Moss Bros profit warning
Moss Bros has become the latest UK fashion retailer to warn that its profits won’t be what had been hoped for. On Wednesday the menswear specialist delivered a bleak trading update that was short on actual figures but certainly painted a picture of an under-pressure sector. Its shares plunged almost 25%.
The company said that “following a review of projections,” the financial year that started on January 28 “will deliver profit at a level materially lower than current market expectations.”
It’s not expecting any change to previously announced expectations for the year that ended on January 27 and we’ll hear exactly what happened during that 12-month period next week with the results due to be published on March 27.
So what’s been going wrong this year? The company said that “following the consolidation of the group's supplier base in response to sterling weakness, there have been material short-term issues with the resulting availability of stock. This stock shortfall across all categories has had a negative effect on sales in all retail channels and will continue to do so until late spring.”
That sounds very much like a major operational misstep and there have been a number of high profile businesses in the UK (outside of the fashion sector) that have taken steps to cut costs and streamline operations only to find that product availability was damaged in the process.
The company also said that “Hire sales continue to be challenging, although the peak trading period for Hire is still to come.”
Additionally, “the reduction in store footfall that was experienced towards the latter part of December, has continued, reflecting a more cautious consumer environment.”
But while the company expects sales to disappoint as a result, it stressed that it continues to increase investment in key areas of future growth, “most notably our e-commerce business, our product development, the customer experience and our Tailor Me proposition, which remains on plan.” It added that: “Our offer is strong, we continue to achieve traction from our investments in the business and we are confident that the business will return to strong growth.”
CEO Brian Brick said that the product supply issues have been a “painful experience, [but] I am confident that the availability issues are well on track to being resolved and the margin benefits from the consolidation will flow through.”
As well as the basket of issues already referred to, he added that “the effect of short-term weather impacts” has also weighed on the firm’s performance so far this financial year.
That suggests that the firm’s retail peers could also issue weather-related warnings in the weeks and months ahead. Late winter/early spring snow in recent weeks has been extra heavy in those regions that frequently see snow and has dented retail turnover generally. It has also devastated transport links in areas that aren’t used to it, which means shoppers (and staff) haven’t always been able to get to stores even if they wanted to. John Lewis has already revealed some negative effects in its regular weekly updates and others might not be too far behind.
Back with Moss Bros, Brick added: “In common with many UK retailers, the year ahead looks like being a very challenging one and we have taken action early to be sure we protect the underlying strength of the business. We do believe continued investment is essential to ensure we retain a sustainable point of differentiation and that we leverage our distinct position on the high street."
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