Times have been tough for high-street retailers of late, with footfall down in many well-known chains and consumers tightening their belts, perhaps bracing themselves for a more austere post-Brexit Britain. And it doesn’t look like things are going to get any better soon, with many high-street stores predicting even tougher times ahead.
Bucking the trend
But while others are struggling, Moss Bros (LSE: MOSB) seems to be bucking the trend. The men’s formalwear specialist has managed to sustain its impressive levels of growth over the last few years and even managed to deliver a very positive set of results for its last completed financial year.
The London-based group reported another year of considerable progress, with total revenue (excluding VAT) up 5.7% on the previous year to £127.9m, and like-for-like sales (including VAT) up 5.3% to £131.5m.
Earnings (before interest, tax, depreciation and amortisation) surged ahead by 8.8% to £13.6m, thanks to improved sales, more targeted discounting and tighter cost controls. The results also revealed a 1.5% improvement in gross margin for the year, to 61.3%, largely due to lower levels of discounting.
Strong brand identity
The figures are all the more impressive given the challenging trading environment in which many of our favourite retailers are currently operating. Management celebrated the progress made during the year by raising the final dividend to 3.98p per share from 3.75p, bringing the full-year payout to 5.89p, a 6.1% improvement on the 5.55p paid out for FY2016.
Moss Bros continues to benefit from its ongoing investment in a strong brand identity, while at the same time forging ahead with its store refit programme, which should help to provide a better environment to showcase its enhanced product range. E-commerce sales also continue to grow, leveraging the process improvements and back-end infrastructure investments made during the course of the year. Furthermore, the Tailor Me custom tailoring service has also been gaining traction with customers right across the country.
With steady growth forecast to continue, I believe a forward P/E rating of 19 isn’t too demanding given the company’s five-year average of 23.5. In addition, Moss Bros’s meaty dividend payouts continue to grow, with the yield currently at 6.2% for FY2018.
Sales decline
Unfortunately, not all high street retailers can boast such a healthy performance. Next (LSE: NXT) has long been one of the darlings of the sector with an impressive track record of growth to match. But earlier this month the Leicester-based clothing, footwear, and home products retailer was forced to cut its full-year sales and profits guidance after a disappointing first quarter.
In the trading statement covering the three months to 29 April, the FTSE 100 retail giant revealed a 3% dip in full-price sales, with its retail business suffering an 8.1% slump over the same period. Total sales, including markdowns were down 2.5%.
Next shares are trading at an 18% discount to a year ago, and may look cheap at just 11 times forward earnings. But I believe they are now at fair value given the anticipated 10% earnings decline forecast over the next two years.