Jacamo, JD Williams and Simply Be brands owner N Brown (BWNG) slumps 22% to a bombed-out 108.2p as disappointing first half results, with adjusted pre-tax profits down 5% to £30.6m, trigger another round of downgrades.

Investors are also spooked by a 50% cut in the dividend to 2.83p. House broker Shore Capital expects a cut of a similar magnitude will be made to the full year payout.

Primarily an online player which recently parted ways with CEO Angela Spindler, the specialist fashion purveyor blames the poor showing in the half ended 1 September on the continuing decline of its legacy offline business – N Brown has now shuttered all its stores – as well as ‘challenging market conditions’.

Management also talk of a disappointing international performance, with sales down 7.9% to £15.3m driven by a sharp decline in the USA.

A new management team is now in place here to try and turn things around.

 

LURCH INTO LOSS

The Manchester-headquartered outfit lurched into a statutory pre-tax loss of £27.1m after new exceptional items, including a further provision for customer redress and two non-cash asset impairment charges.

And in a major blow for those investors who hold the stock for income, the dividend is halved from 5.67p to 2.83p.

Chairman Matt Davies explains: ‘Whereas much progress has been made transforming the business into an online retailer, we have not yet achieved the growth in product or international that we would have hoped for and have decided to rebase the dividend to a more sustainable level from which we will seek to grow.'

Davies continues: ‘We are now in the process of searching for a new chief executive to take the group forward through the next phase of its development.

'In the meantime, we are pleased that Steve Johnson will lead the business. We have a strong base on which to build. Over three-quarters of our product revenue is now online and we have industry leading expertise in fashion that fits. This is supported by a strong financial services business.  Our goal of becoming a world class digital retailer remains unchanged.’

UNCERTAIN OUTLOOK

Turning to the outlook, N Brown expects offline sales will ‘continue to fall as we focus on online Power Brand (JD Williams, Jacamo, Simply Be) 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.'

Subdued product sales trends are continuing into the second half, yet N Brown insists ‘the continued positive outlook for Financial Services and scope for further efficiencies mean that our full year expectations are unchanged.'

Nevertheless, Shore Capital nudges down its full year pre-tax profit forecast by 3% to £81.2m and expects the full year dividend will be cut from last year’s 14.2p to just 7.1p.

Also downgrading its 2020 pre-tax profit estimate by 2.6% to £84.5m, the broker still argues unloved N Brown is mispriced, ‘whether viewed as an online apparel retailer or a consumer credit business.'


Issue Date: 11 Oct 2018