This old-fashioned retailer has the hallmarks of a successful turnaround.
The prospect of buying shares in an outdated, old-fashioned retailer operating in a tremendously competitive environment during a tough economic time may seem ridiculous.
The market certainly seems to think there isn't too much of a future for Moss Bros. (LSE: MOSB) valuing the gentlemen's outfitters chain at a shade over £20m at its current mid price of 21.25p.
In return for an investment at today's discounted price, though, investors would seem to be getting some smart value. At the last count, the retailer had net assets of £37m and was fighting a dogged rearguard action in difficult circumstances to preserve its cash and asset base.
You might say Moss Bros has seen it all before. After all, it's been plying its trade since 1851.
Today, the company has over 150 stores throughout the UK, operating through two trading divisions. Its mainstream division has 116 stores (including Moss, Moss Bros Hire, Moss Bros, Savoy Taylors Guild and factory outlet stores), whilst the fashion division's 35 stores include Cecil Gee, Hugo Boss, Canali and Beale & Inman. And in Autumn 2005, Moss Direct a Mail Order and Internet Shopping Division was launched.
New man at the helm
As you might expect, the last couple of years have been tough -- reflected in share price performance. Five years ago, the shares were six times their current level, since when it's been in the sales all the way to 10p in March of last year. In the same month, Moss Bros brought in a new man at the helm -- a man with "Suits You" experience no less.
It remains to be seen whether he can steady the ship and begin to extract some of the inherent value for long-suffering shareholders. It's a tough job. In the last full year to the end of January 2009, Moss Bros turned in a pre-tax loss after exceptional items of £9.3m -- though the bulk of its £4.3m exceptional costs were related to write-downs in the value of some of its stores.
Tough going
It seems the new man is coming out fighting. In the first half to the end of July, the company posted a pre-tax loss of £3m as sales fell slightly to £60.7m, but that didn't stop the boss announcing plans to open up to 40 more stores as part of the company's new strategy; a strategy it is keeping under wraps for the time being.
What we do know is that Moss Bros intends to make itself appear a little more dapper and contemporary by refitting its shops -- and that it intends to have more of them.
This may sound like good news, but to the out-and-out value hunter, spending additional money is never welcome. However, Moss Bros still had over £35m in net tangible assets including over £5m cash at the half way stage.
Potential
It's not hard, then, to see the potential if the old tailor can trade profitably. Until the last couple of years, Moss Bros steadily brought in profits around £5-6m.
The latest news on the profit potential front seems positive. In December, it told us it had seen a marked improvement in trading, and said if the trend continues over Christmas and January, the last five months will have "a materially positive impact" on market expectations for the year. The company said it had benefited from workers keen to look sharp in the workplace as the recession continued.
The turnaround strategy has also begun in earnest with the opening of three new stores in the second half to rake in some extra Christmas cash.
Brokers aren't predicting a profit for the foreseeable, but the valuation seems to suggest the retailer can't get back to its former levels of profitability. The boss clearly thinks otherwise. IF he's right, the shares are a bargain.
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