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May 19, 2020

N Brown shares rise on new funding despite sales tumble

UK digital clothing and footwear retailer N Brown Group says while trading has improved from the "sudden and significant" decline experienced in March amid the Covid-19 pandemic, product sales were down 25% in the last six weeks – with continued weakness in clothing.

By Beth Wright

UK digital clothing and footwear retailer N Brown Group says while trading has improved from the “sudden and significant” decline experienced in March amid the Covid-19 pandemic, product sales were down 25% in the last six weeks – with continued weakness in clothing.

In a trading update this morning (19 May), N Brown notes apparel sales tumbled 48% in the six weeks to 16 May with a more significant decline seen in offline sales as opposed to digital. 

The drop comes amid “significant” growth in the home and gift categories, which saw a 74% surge, boosted by the April launch of the group’s standalone home brand, Home Essentials.

N Brown has taken a number of steps to maximise operating efficiency and preserve liquidity amid the Covid-19 pandemic which led to a nationwide lockdown in March in an attempt to stem the spread of the virus. Among them is the furloughing of 30% of colleagues across the business; recruitment and salary freezes; and voluntary pay reductions from April to June for PLC board, management board, and senior leadership team. The retailer has also reduced its marketing expenditure by 80%.

It has now also secured new financing arrangements with its lenders, including a three-year term loan facility of up to GBP50m (US$61.2m) under the government’s Coronavirus Large Business Interruption Loan Scheme (CLBILS), in a move that saw shares in the group rise this morning.

Meanwhile, N Brown says it continues to pay its product suppliers to contractual terms but has cancelled some orders due for spring/summer 2020 given the “uncertain demand backdrop.”

It adds future orders for autumn/winter 2020 have been rephased and, in some cases, suppliers are reworking pre-ordered fabrics for more appropriate seasonal lines. In recent weeks the group has started to work with suppliers on spring/summer 2021 orders.

“In what remains a very uncertain environment, we have been balancing our number one priority of looking after our colleagues, with a commitment to continue serving our loyal customers, whilst ensuring the business has the resilience to navigate the various challenges we are facing,” CEO Steve Johnson says.

“We are pleased to have secured support from both our banking partners and the government’s loan scheme, which help to strengthen our financial position and gives us the flexibility and certainty to manage through this challenging period. In addition, the immediate and substantive actions we took at the very outset of this crisis have supported our working capital positively in this period.

“We have a unique portfolio of brands and products which appeal to a range of customer groups who can also benefit from our flexible payment options. As we further develop and improve our offer, we remain confident in the long-term prospects for the business as we emerge from these challenging times.”

N Brown did not provide any guidance for the financial year ending 27 February 2021 and expects to release its results for the year ended 29 February 2020 in mid to end June.

In March, the retailer warned it is anticipating “a material reduction in demand” for the remainder of the financial year on the back of the coronavirus outbreak.

Failure to capitalise on online spend shift

Commenting on today’s trading update, Sofie Willmott, lead analyst at data and analytics company GlobalData, notes despite N Brown’s performance improving in the last six weeks compared to when the UK lockdown initially caused sales to plummet, the retailer has struggled to capitalise on demand shifting online.

“Other retailers have reported much stronger online uplifts and although N Brown has benefitted from selling products other than clothing and footwear (including electricals, toys and bikes), these categories account for a smaller proportion of its stock and have not been enough to prop up total sales.”

N Brown’s product range, across its brands, is dominated by clothing and footwear which is set to be the hardest hit sector by Covid-19 with online spend forecast to decline 9.5% this year. Although many multichannel clothing and footwear retailers are seeing spend transfer online while their stores are closed, N Brown does not have stores and therefore has not experienced an online boost from this channel shift, she adds.

“42.6% of UK consumers have spent more online as a result of the pandemic (according to GlobalData’s survey conducted in early May) so N Brown should have been able to capture some of the additional traffic and spend available digitally, however it appears to have missed out as its better known competitors have been shoppers’ first port of call. Lower brand awareness has put N Brown at a disadvantage and with its marketing expenditure being slashed by 80% this year, it is unlikely to acquire a significant number of new customers, relying on its existing shopper base to hold up sales.”

She adds: “N Brown has secured a three-year loan for up to GBP50m under the government’s coronavirus large business interruption loan scheme and this along with other provisions the retailer has put in place, including furloughing 30% of staff, freezing recruitment and salaries and reducing the pay of its senior team, will give it some breathing room in 2020. Its share price has risen as a result this morning, with investors feeling slightly more confident about the retailer’s future.”

Shares in the group were up by more than 17% at the time of going to press.

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