Plus size fashion retailer N Brown (BWNG) reverses 12.6% to 304.3p as it disappoints with a weather-inspired profits warning. The Simply Be-to-Jacamo brand owner's earnings alert, not entirely unexpected given comments from Next (NXT) and H&M, sees analysts slashing profit forecasts.
Read the Manchester-based online, catalogue and stores retailer's interim results to 30 August in detail here. In brief, lower profits reflect a shift in marketing weighting towards the more profitable second half, credit policy changes to reduce bad debts, not to mention investment in IT and retail store expansion.
However its a full-year profit warning that's irking investors. N Brown, whose proposition is built around 'fashion that fits', says third quarter sales have been hit by 'unseasonably mild autumn temperatures in September and so far in October'. Absent credit balances from lost sales, the likely need for stock mark-downs, as well as the margin impact of marketing spend yet to produce the goods will also crimp earnings.
Pre-tax profits are now expected to be 'in the range of £88 million to £92 million', prompting Shore Capital to swipe 14% from its forecast. The broker now looks for £88 million profits, for a 13% year-on-year earnings decline to 24.1p.
The good news is CEO Angela Spindler's (pictured below) strategy to move the business further away from mail order and more towards multi-channel with a fashion-led focus is progressing. N Brown's long-term growth prospects are compelling against a backcloth of longer lifespans and bulging waistlines.
Its overall active customer base is growing strongly, while the re-launch of biggest brand JD Williams has been positively received. Spindler wants to maximise online sales, now speaking for over 58% of the top line, though she says the expanding portfolio of Simply Be/Jacamo stores are trading strongly and enhancing digital sales too.
Nevertheless, Investec Securities has placed its forecasts and price target under review. 'While we believe management's strategy is right for the businesses long term, arguably management has been too ambitious in its change programme, anticipated customer response and execution has been poor.'
Sticking with its 'hold' recommendation, Cantor Fitzgerald Europe cautions 'the reduced profit before tax guidance for full year 2015 implies gross margins could be down 50 basis points and costs up 5% this year, implying a much weaker second half than expected,' the broker says.