Why I’d still buy Moss Bros Group plc after today’s 15% crash

Moss Bros Group plc (LON: MOSB) is sliding but the company still has some attractive qualities.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Moss Bros Group (LSE: MOSB) has become the latest retailer to issue a profit warning following a weak Christmas trading period. 

The retailer announced this morning that due to lower footfall than anticipated during December, particularly in stores, it now expects to report a full-year profit before tax within a range of £6.5m to £6.8m, slightly below the current median forecast among analysts of £7.3m.

Like-for-like total sales for the 23 weeks to 6 January declined 0.1% year-on-year. Meanwhile, retail sales, including e-commerce, were up 0.4% on a like-for-like basis, thanks to a 12.3% increase in online sales. E-Commerce now accounts for around of 13% of group revenue, which is a relatively low percentage.

The suit hire business, which accounts for only 10% of revenue, saw a 3.6% decline in like-for-like sales though this was a marked improvement on the 8.4% decline in the first half of the year.

Unfortunately, management expects these harsh trading conditions to continue for the foreseeable future and would have an impact on profits for the next financial year as well as this one. Gross margins were down 3% year-on-year, after falling 0.7% in the first half of the year.

Unique offering 

Moss Bros is the UK’s leading formalwear retailer, which gives it a certain advantage over other retailers. With 158 stores across the country, the group’s footprint and reputation have helped it more than double pre-tax profit over the past five years. 

I believe that over the long term, this trend will continue. Indeed, buying a suit is not something that can easily be done online, which means unlike other retailers, the Moss Bros high street store portfolio should be an advantage, not a hindrance. 

Also, unlike other retailers, Moss Bros is a cash machine. According to today’s update, the group expects to end its current financial year with £17m in cash after spending on developing its store portfolio. For the fiscal year to January 28 2017, the firm generated free cash flow (after capital spending) of £7m, more than enough to build its cash reserves and distribute over £5m to investors via a dividend. 

At present, City analysts are expecting the firm to pay out 6.2p for fiscal 2018, which translates into a yield of 8.3% at current prices. Even if this target is not met, and management decides to hold the payout at last year’s 5.9p level, investors are in line to receive a yield of 7.8%. A dividend cut of as much as 30% to 4.1p would still imply a yield of 5.5%. 

Overall, considering the unique Moss Bros proposition and attractive market-beating yield, I would buy the shares after today’s 15% decline. Earnings growth might not return for the next few years, but investors should be paid to wait as the firm improves its customer offering. Over the long term, this investment should pay off, and it is likely shareholders will be rewarded for their patience. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are Lloyds shares the best no-brainer buy for a 2025 Stocks and Shares ISA?

Picking Stocks and Shares ISA buys can be hard on the little grey cells. Might a few relatively simple rules…

Read more »

Investing For Beginners

3 things I think could cause a UK stock market crash before the summer

Jon Smith explains that although he isn't expecting a stock market crash today, there are a few reasons why he's…

Read more »

Investing Articles

2 bold stock market ideas to consider for a Stocks and Shares ISA

Our writer thinks these two speculative shares offer high long-term growth potential from where they currently sit in the stock…

Read more »

Investing Articles

Up 10% today, is it time to consider buying this unloved FTSE 250 value stock?

Jon Smith looks at a top performer in the FTSE 250 today, with the move coming from strong results from…

Read more »

Inflation in newspapers
US Stock

1 stock to consider as inflation data sends the S&P 500 soaring

As US markets opened on 15 January, the S&P 500 soared by 130 points on positive inflation data. Our writer…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Down 15% despite strong recent results, is it time for me to buy shares in FTSE retail institution Marks and Spencer?

FTSE retailer M&S saw its share price drop despite a very strong Christmas trading update, which means a bargain may…

Read more »

Investing Articles

Down 16% since August, this FTSE 250 defence firm looks cheap to me anywhere under £8.04

This FTSE 250 firm's a leader in its field and should benefit from massive increases in European defence spending. At…

Read more »

Investing Articles

Down more than 20% in 2024. I think these 3 UK stocks could reverse that – and then some – in 2025!

Harvey Jones picks out three UK stocks that had a tough time last year, with their shares falling sharply as…

Read more »