Mosaic Brands has released its full year 2020 results, reporting an underlying loss before interest, tax, depreciation and amortisation (EBITDA) of $45.8 million after a $49.0 million provision for rents.
The business reports that this result is before $113.5m of non-cash impairments related to brand names, goodwill and right of use assets.
Mosaic puts its figures down to the devastating bushfires which directly impacted 20% of the group's store portfolio as well as the closure of stores for nine and a half weeks during the COVID-19 pandemic over key purchasing periods such as Mother's Day.
However, similarly to other retailers during this period, Mosaic's nine online stores experienced strong growth, with sales reaching $93.7 million in FY20, a 14.7% growth year on year.
The Group reported digital sales H2 growth of 35.9% and has seen this continue into FY21, with digital sales in July up 40%.
Mosaic ended June with over 150,000 SKUs available online across 14 categories.
The Group also reported that due to the decision to not pay a first half dividend as well as actions taken during COVID to reduce inventory by 50%, the business ended the year with a strong cash position of $77.6 million (net cash $3.6 million).
Mosaic Brands CEO and MD Scott Evans said that before the bushfires and COVID, the business was on track to deliver positive results.
"Today’s result does not reflect the consistent growth the Group has achieved over the past four years, nor does it reflect our circa 6,000 strong team’s hard work and commitment during FY20.
"The first third of the financial year saw the business perform solidly.
"The acquisition of the ex-SFG brands delivered comparable store sales and margin growth, and we were forecasting EBITDA of $75m for FY20.
"That forecast was utterly derailed, first by the devastating bushfires which directly impacted 20% of our store portfolio over the Christmas period, then by COVID-19 which saw us close all 1,333 stores for 9 ½ weeks including the peak Mothers’ Day trading period.
"There is no roadmap to navigate these circumstances, but our operational priorities have been ensuring team and customer safety, reducing inventory and maintaining a strong cash position.
"This has allowed us to reshape Mosaic to take advantage of the fundamental changes happening in retail," he said.
Speaking on the closure of stores during COVID, Mosaic Brands Chairman Richard Facioni added that the business was one of the first to close its stores during Stage 3 lockdowns to protect its customers and staff.
"Many of our customers and team members are in the most vulnerable segment that COVID-19 attacks.
"Keeping hundreds of stores open longer in a key trading period would have been fiscally sound but completely against our commitment to putting our team and customers first.
"We strongly believe that in the longer term this demographic will play a key role in retail as the majority are not of the JobKeeper generation and are more likely to return to spending as and when the virus recedes.
"The Board and I also recognise the ongoing commitment of our 6,000 Mosaic team members throughout what has been an unprecedented 12 month period and acknowledge the impact potential store closures will have on them in tough economic times," he said.
Retail stores and EziBuy update
Meanwhile, over the course of the past three years, the business has been progressively reducing its exposure to long lease terms, resulting in approximately 41% of the current leases in holdover or expiring in December this year, while 87% of the Group's 1,333 store leases expire over the next two years.
This gives the Group agility in its store portfolio, with the business anticipating that it could close between 300-500 stores in the next 12-24 months, Evans added.
"The retail rental market in Australia is not paused because of the pandemic - it is fundamentally changed for the future.
"Some though not all landlords accept that reality, so while exact locations and numbers are to be determined, the Group anticipates potentially 300-500 store closures over the coming 12-24 months.
"Shuttered stores work for no one so we aim to minimise closures, but not on uncommercial terms," he said.
During the period, the business also acquired a 50.1% interest in EziBuy.
Mosaic reports that it has made solid progress with its turnaround plans including reducing its cost of doing business and improving its inventory holdings.
Mosaic will continue to review its option over the remaining 49.9% over the coming months in light of EziBuy’s strategic benefits to the Group.
Outlook
Mosaic anticipates that it will return to sustainable profitability in FY21, subject to no further disruptions from COVID-19.
"Although traffic and sales in July 2020 remained substantially below the prior year, the Group’s recent actions and its continued focus on margin have encouragingly delivered comparable store margin growth for the month," Mosaic said in statement.
"In addition, cost of doing business initiatives are expected to realise a further $18m in savings throughout the year (net of JobKeeper benefits).
"The recent store closures in Victoria and New Zealand, along with the subsequent subdued sentiment across other Australian states in August, have been challenging.
"Notwithstanding the constantly changing environment, the Group is well positioned to return to sustainable profitability in FY21, subject to no further material disruptions to operations due to COVID-19," the business said.
The Board has determined there will be no dividend for the financial year.