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January 16, 2020

N Brown shares tumble amid profit warning and Q3 sales drop

Shares in N Brown Group tumbled by more than 26% this morning (16 January) as the online, catalogue and stores retailer lowered its annual adjusted pre-tax profit guidance amid a drop in third-quarter revenue. 

By Beth Wright

Shares in N Brown Group tumbled by more than 26% this morning (16 January) as the online, catalogue and stores retailer lowered its annual adjusted pre-tax profit guidance amid a drop in third-quarter revenue. 

In a trading update for the 18 weeks to 4 January, N Brown said total revenue was down 5% on last year and by 4.1% excluding the US.

Product revenue slid 4% as the company continues the managed decline of its legacy brands, while digital revenue increased 2.5%, driven by strong growth at Simply Be and Ambrose Wilson. 

Digital sales now account for 87% of product revenue, an increase of 5 percentage points compared with the 18 weeks to 5 January 2019.

Meanwhile, womenswear revenue was up 1.1% with the division’s digital revenue rising 6.7%. Simply Be was the standout performer, growing revenue by 12.1% during the period and reporting a 13.1% hike in digital sales. The performance was driven by increased sales of “party tops” and the brand’s athleisure range which benefitted from closer to home, more reactive sourcing with lead times reduced by four weeks. This was complemented by the Simply Be app with demand penetration increasing by 76% year-on-year.

JD Williams sales were down 4% but digital revenue edged up by 0.4%. Ambrose Wilson revenues slid 9.6% but were up 7.9% in digital.

In menswear, the Jacamo brand saw sales grow 2.5%, delivering digital revenue growth of 3.2%.

Elsewhere, financial services revenue declined by 4.6% due to lower product revenue and the impact of previously announced measures undertaken on changes regarding the group’s lending practices.

“This has been an encouraging period of peak trading for the business in a highly promotional market, as we delivered digital revenue growth across both womenswear and menswear with particularly strong digital growth from Simply Be and Ambrose Wilson as customers responded well to our ranges,” said CEO Steve Johnson.

However, it was not enough to offset a profit warning which saw N Brown downgrade its full-year adjusted profit before tax guidance to a range of GBP70m-GBP72m (US$91.4m-$94m). This compares to previous guidance of GBP78m-GBP84.1m.

N Brown cited a lower than expected benefit from the IFRS9 non-cash provision estimate, combined with lower financial services revenue and a highly promotional market for the reduction. 

The group also said profits would be at a similar level in the following year and revised its product gross margin guidance for FY20 to reflect the “highly promotional market experienced over the peak trading period”. It now expects product gross margin to be down by 125bps to 175bps compared to previous guidance of -50bps to -150bps.

Johnson added N Brown is making good progress with its ongoing strategic review and will continue to proactively address the “accelerating and cumulative external factors” which are anticipated to reduce the size of its financial services business over the next two years.

“These will significantly influence the way we will operate our financial services business and we are taking proactive measures to ensure that the change is managed appropriately. This is in-line with our strategy of becoming a digitally focused, retail-led business.

“Our expectations remain that the retail market will continue to be challenging and promotional, but we are focused on our clear strategy of delivering profitable digital growth.”

James Yacoub, retail analyst at GlobalData, notes N Brown has had a tough Christmas trading period delivering a set of weak results.

“Although some progress has been made towards its five-pillar transformation plan namely through increased cost efficiencies and digital growth, the retailer is now well into the plan and is still crucially failing to deliver growth in its product revenue.

“In a period where many midmarket retailers such as M&S are struggling, there is opportunity for the retailer to gain some market share. However, N Brown has clearly been feeling the heat from multichannel retailers such as Next and JD Sports who have fortified their propositions through increased credit options as well as implementing more effective merchandising strategies to remain relevant in a highly competitive market.

“The retailer’s financial services revenue has taken a hit as more nimble financing players such as Klarna have gained prominence in online retail, further extinguishing N Brown’s uniqueness.”

Clive Black, analyst at Shore Capital, adds while there were “undoubted bright points” in the product performance of the group with the overall digital participation 5% higher year-on-year at 87%, the impact upon sales of the ongoing decline in legacy brands offset the positive performances. 

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