Moss Bros offloads 15 Hugo Boss franchised stores for £16.5m

After the retailer sealed a “transformational” £16.5m deal to offload 15 Hugo Boss franchised stores to the German fashion group, Moss Bros shares rose 11pc. Due to the affair, just approved by shareholders, will give back to the German label the 15 Hugo Boss stores the men tailoring franchise was operating in the UK.

According to market sources, this transaction would facilitate Hugo Boss UK expansion plans while afford some cash back to the British franchise, still trying to recover from a pre-tax loss of £6.7m for the year to January 2010. Amidst operation talks, Moss Bros like-for-like sales rose 7% in the 26 weeks to January 29 – a slight slowdown on the 8.3% reported in early December.

The Hugo Boss franchise reportedly contributed more than £30m of annual income to Moss Bros and Numis Securities for estimates it would have contributed about £3m of profits in the year to January 2012, suggesting a “modest” disposal price of 8 times post-tax earnings, as published by the Financial Times. Moss Bros, which operates from 155 stores, has been struggling in the downturn, as oppose to Hugo Boss, backed by private equity group Permira, which reported record annual profits of €189m ($257m) last Friday. Moss Bros is forecast to make a £2.9m loss in the year to the end of January, according to analysts. Moss Bros said £4.2m of the sale proceeds would be paid on the deal’s completion, with a further £12.3m in installments payable by December.

With such a prospectus, Moss Bros said it wants to use the Hugo Boss money to revamp core stores and finance new initiatives, such as the roll out of its Moss Bespoke tailoring service. It will also invest cash in its online offering and said the deal will mean it can operate debt free. The franchise group also trades as Savoy Taylors Guild and Cecil Gee, has operated Hugo Boss stores under franchise since 1995.But it said it will continue to maintain a wholesale relationship with Hugo Boss after the stores sale and stock the label in certain Moss Bros and Cecil Gee stores. Brian Brick, Moss Bros’s chief executive, said the sale would give the company a warchest to invest in its core brands and revamp its 120 stores. “This is a transformational deal for Moss Bros,” Mr Brick said. “This transaction will give us the opportunity to focus exclusively on investing and developing the brands which we own.”

Mr Brick said he was “slowly and gradually” turning around German fashion group Moss Bros after two years at the helm of the suit retailer but admitted that some stores still looked “tired”. He said the sale proceeds would help pay for necessary investment as part of the roll-out of a new look for the brand.

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