Online, catalogue and stores retailer N Brown Group has warned it expects offline sales to continue to fall as it focuses on driving online growth of it’s three so-called ‘Power Brands’ – JD Williams, Simply Be and Jacamo.

In a trading update for the 26 weeks to 1 September, N Brown said adjusted pre-tax profits slipped 5% in the first half of the year to US$30.6m from $32.2m in the year-ago period.

Group revenue edged up by 1% to $475.8m in the period, hampered by a 3.1% fall in product revenue excluding stores, which have all now closed.

Meanwhile, N Brown’s ‘Power Brands’ – JD Williams, Simply Be and Jacamo – continued to outperform the rest of the group, with revenue up by 1.8% excluding stores. In line with the company’s growth strategy, Power Brands now account for 58% of product revenue.

Simply Be was again the group’s best performer, recording revenue growth of 8% excluding stores. JD Williams decreased by 3.1% but was up by 7.5% excluding Fifty Plus. Jacamo was ahead by 2.7% excluding stores.

N Brown’s transformation to a leading online retailer continues at pace, with digital sales now accounting for 77% of product revenue, compared to 71% in the first half of 2018. Online revenue grew by 3.8% in the period and was ahead by 8.6% for the company’s Power Brands. Offline revenue decreased by 22.4% as the group continued to shift its focus to its growing online business.

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Gross margin, meanwhile, decreased by 60 basis points to 54.2% reflecting the decline in product gross margin, which also fell by 60 basis points to 53.4% as the company decided to invest more of its marketing expenditure in promotional activity.

Steve Johnson, CEO of N Brown’s financial services business, who is leading the business since the departure of former CEO Angela Spindler last month, said while the group’s adjusted profit was in-line with expectations, it was disappointed with its wider product performance which was impacted by the ongoing decline of its legacy offline business and challenging market conditions.

“Going forward we expect offline sales to continue to fall as we focus on online Power Brand growth. While this will hold back revenue in the short term, there are opportunities to drive profit particularly through improved efficiency, as the business further shifts online, and we accelerate the use of analytics to increase returns on our promotional spend,” he added.

“While first-half trends seen in our product business are continuing into the second half, the positive outlook for financial services and scope for further efficiencies mean that our full-year expectations are unchanged.”

The group has also revealed plans to cut its dividend by 50% to 2.83 pence; what it called a “more sustainable level” from which it will seek to grow. 

Shares in the company were down by more than 22% this morning (11 October). 

Sofie Willmott, senior retail analyst at GlobalData, notes the retailer’s incoming chief executive, who is yet to be decided, cannot rely on its financial services division for future growth and must ensure it capitalises on meeting customer demands, by offering relevant products in the underserved segments it operates in.