Will Mosaic Brands survive?

This is THE ultimate question when it comes to this company

Perhaps the lowest quality retailer on the ASX

Anyway, the company is in suspension right beause they have not lodged their 4E and audited results. But they did release a Business Update the other day and the company is 'rationalising' the operations of their business by winding down the underperfoming brands and focusing on the core brands

They have named this realignment - 'Focus on Core'

"Focus on Core brand rationalisation Mosaic CEO Erica Berchtold said the Group would rationalise its brand portfolio as part of driving simplification across the business and focusing resources. “Mosaic will wind down five brands which have become marginal and non-core, allowing us to focus on five core growth brands,” said Ms Berchtold. “Each of those core brands will have a clearly differentiated market proposition, target customer, price point and product range. As part of the Focus on Core plan, Mosaic will exit the Rockmans, Autograph, Crossroads, W.Lane and BeMe brands, including all stores and websites.

The Group will now capitalise on and invest in its Millers, Noni B, Rivers and Katies brands, along with a standalone online Mosaic marketplace."

If the company survives perhaps there is some value here. That is a BIG if

I noted that a family member commented that at one of Mosaic brands stores they got a great deal where everything in store was $25 or less. This meant significant discounting, often over 50%. Looking at websites of many of the other brand's owned by Mosaic, it appears there are similar deals on a broad range of items. If this were Boxing Day, the level of discount would make sense, but this is occurring the week before Christmas?? Unless this is their standard practice for encouraging sales, I am wondering if something is significantly wrong? Do they need to raise cash quickly or have way too much inventory?

I had previously had a quick look at Mosaic Brands. I concluded, if this doesn't go under then with just a small improvement in the long-term outlook it could be considered cheap. However, I thought the risk of going under is real and significant discounting before the Boxing Day sales wouldn't give me any positive signs if I was a holder... Hopefully, I'm completely wrong...

Mosaic Brands (MOZ) is an extremely low quality retail discretionary company that looks cheap based off sales/revenue but has horrendous operating margins. For instance, revenues around $700-800m the last few years but barely profitable.

The ASX required the company to start issuing 4Cs a year ago.

MOZ also released a negative trading update 8th June that pushed the share price down 56% to a market cap around $20m

Onto the June quarter Appendix 4C:

Cash receipts $205m

OCF $57m

Acquisition $11m

Lease Liabilities $17.8m

Cash doubled to $42m (good cash flow even after acquisition)

Debt $37.3m (so net cash by almost $5m)

Fairly bullish in the commentary with some mention of improving trading conditions, increasing onlince prescence and focus on cost control

BUT the June quarter tends to be a good quarter for the company and it would not surprise to see a woeful September quarter.

The market has been concerned about the viability of the company moving forward. Otherwise, there might be some good value if management can increase those margins and not signifcantly hurt sales.

**Below is cash receipts history over past five quarters. Topsy-turvy ride for the company and reveals the seasonality ... although sales may/probably were affected by lockdowns last year**

Mosaic Brands 1H 2021 results

•  Underlying EBITDA* for the period of $45.1m up 38%.•Record online sales up 27% on the previous corresponding period, with online products available growing to over 350,000 SKUs as customers diversify purchasing behaviour.
•  Net Cash holdings up, closing on $65.3m from $5.4m in the PCP.
•  Strategy of margin growth results in -5.6% comp store margin against -15% comp store sales with statutory gross margin increasing to 61%**.
•  Group expects a return to sales growth on the back of COVID-19 vaccine tailwinds in FY22.

Notes: All amounts referenced exclude EziBuy contribution unless otherwise specifically stated.

*EBITDA is a non-AASB financial measure, defined for the purposes of this document as earnings before interest, tax, depreciation, amortisation, non-recurring income/expenditure and certain non-cash items such as share based payments and unrealised foreign exchange gains/losses and excludes restructure and acquisition costs and has been adjusted to normalise the impact of AASB16 accounting treatment.

** Gross margin adjusted for unrealised movements in foreign exchange