Mosaic blames bushfires for sales slump

Fashion chain Mosaic’s shares dive after it becomes one of the first retailers to cite bushfires as it reports sinking sales.

Noni-B is one of Mosaic’s retail brands.

Fashion chain Mosaic Brands, whose branded outlets included Noni B, Katies, Rockmans and online retailer EziBuy, has become one of the first high-profile retail victims of the bushfire crisis.

The retailer says same-store sales sank by 8 per cent in the six months to December 31, as one in five of its shops felt the impact of fires along Australia’s east coast and in South Australia.

Mosaic shares dived 17 per cent to be down 38c at $1.88 in late morning trade.

Tourism has been hit, towns evacuated, roads closed and poor air quality felt in big cities amid bushfires which are predicted to dampen the nation’s consumer spending.

Mosaic said in a trading update that comparable sales through the second half of November and throughout December, a critical sales period, were significantly impacted by the ongoing bushfire crisis.

Mosaic, which recently changed its group name from Noni B, said 20 per cent of the group’s stores had been impacted by the fires. It said some 32 per cent of its 1386 stores are located in regional areas where consumer confidence has been particularly fragile.

As a result, comparable sales for the half were 8 per cent lower than last year, Mosaic said.

However, a focused strategy on protecting its margins and not engaging in damaging discounting and promotions was paying off.

Mosaic said underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for the half year are expected to be in the region of $33 million, an increase of approximately 13 per cent over the same period of 2019. EBITDA (after non-recurring project costs) is expected to be circa $32 million, up 36 per cent from $23.5 million.

“As outlined at the AGM in November, in a continuing difficult and changing retail environment the group continued its strategy of prioritising gross margin over sales during the period,’’ Mosaic said.

As a result, percentage gross margin successfully increased to circa 59 per cent, up from 56 per cent, driven by cost price improvements and a more disciplined approach to discounting. This strategy led to comparable sales for the period to the end of October being down 4 per cent with that worsening to an 8 per cent sales dive as the bushfires impacted stores and regional consumer confidence.

Online sales, excluding sales by EziBuy, contributed 10 per cent of total group revenue, while cash conversion was strong with net cash of around $4 million at December 29.

As a result, the board anticipated a dividend for the period consistent with the company’s dividend policy of 60-70 per cent of profit after tax, it said.

“The group is well prepared for the second half, with a dedicated team, excellent product and a healthy stock position. Management is confident of delivering consistent earnings growth in the future, subject to external conditions.”

Second half earnings are anticipated to demonstrate higher growth, relative to 2019, than in the first half, particularly given the bushfires that have dented sales in the December half.