Australian fashion retailer Mosaic Brands (ASX: MOZ)—the company behind brands like Noni B, Millers, Rockmans, Katies, Crossroads and Beme—has reported a challenging second half of FY24, citing disruptions in its supply chain and a decrease in consumer spending as key factors impacting its financial performance. 

Despite a strong first half with a $13.1 million EBIT, the Company now anticipates a marginal loss at the Operating EBITDA level for the full fiscal year, FY24. The second half of FY24 has been more challenging for Mosaic and across the discretionary consumer sector more broadly. Further, Mosaic was negatively impacted by disruptions as it migrated to a fully integrated logistical supply chain and distribution system with a newly appointed global partner.

These disruptions, which were more severe than initially anticipated, delayed inventory deliveries leading up to the critical Mother’s Day trading period. This, combined with a general softness in consumer spending, significantly affected revenue and earnings in the fourth quarter.

Mosaic owns and operates nine retail clothing brands, predominantly within women’s apparel and accessories across Australia and New Zealand. It operates a network of 730 stores and several online digital department platforms.

In Q3 FY24, Mosaic reported operating cash inflows of approximately $11.8 million, an improvement from the $17.6 million outflow in the corresponding period last year. However, the Company’s cash balance at the end of the quarter stood at $4.8 million, down from $24.6 million at the beginning of the period.

Despite reducing its stock purchases by 33% for the first half, achieving an in-store decline of just 6.6%, it reported that customers are favouring the new ranges. For the second half, sales for the first eight weeks were broadly in line with expectations, with low-cost inventory flowing into stores until the supply chain disruptions.

During FY24, the Company also undertook a leadership change. Erica Berchtold was appointed CEO of Mosaic Brands, replacing Scott Evans, who retired from the Group. 

The Group’s investment into digital continues with the move to a Salesforce platform to deliver expanding local and international online offerings. The transition to this new platform throughout the first quarter is expected to impact digital revenue in the short term, but it will be completed before the critical trading periods.

Looking ahead, Mosaic Brands expects a recovery in the first half of FY25. The Company plans to increase inventory intake by 20% at a 10% lower cost compared to the first half of FY24, which is expected to improve sales performance. FY25 will also benefit from the annual cost savings of the new logistics partnership.

Additionally, the issues with the new logistics model have been largely resolved, and inventory levels are normalising across the group, with comparable sales improving throughout June. 

Mosaic continues to manage its working capital position closely during this period and is continuing to progress the terms of refinancing or extending its outstanding convertible notes.