Shares in N Brown (BWNG:AIM) cheapened 8.7% to 67.75p on Friday as the digital specialist fit fashion retailer reported a subdued third quarter performance with total product sales down 8.9% and financial services income falling 8.3%.

Encouragingly however, the decline across its five strategic brands was far more modest. And the online retailer enters the new year with materially reduced leverage levels, having recently completed a £100 million capital raise to fund its new growth strategy and eliminated all unsecured debt.

IMPROVING TRAJECTORY

Over the 18 weeks to 2 January 2021, a period of intermittent Covid-related lockdowns and restrictions, the recovery in the product sales trading trajectory reported through the second quarter continued.

N Brown’s financial services business also saw a more robust level of income relative to second quarter levels.

Total product revenues fell 8.9% in Q3, a vast improvement on the steep 29% drop seen in the first quarter due to the onset of the pandemic and the 12% contraction witnessed in the second quarter.

Sales across N Brown’s five strategic brands - JD Williams, Simply Be, Jacamo, Ambrose Wilson and Home Essentials - were down by a much more modest 1.4% in spite of much lower year-on-year marketing spend.

‘We continue to move through the acceleration phase of our strategy; simplifying and strengthening our core brand proposition whilst improving our digital capabilities,’ commented chief executive Steve Johnson.

‘This is generating continued momentum within the business, despite the difficult macroeconomic backdrop. We saw a continued recovery in product sales over the key Christmas period with particular strength in our Home & Gift proposition’, he added.

During the quarter, N Brown experienced particularly strong demand for computing, gaming and white goods, with strong growth in leisurewear and nightwear offset by a decline in dresses, formalwear and swimwear.

THE SHORE CAPITAL VIEW

For the year to February 2021, N Brown expects to deliver adjusted EBITDA of between £84 million and £86 million, in line with expectations despite the ongoing challenges of Covid and stock delivery delays due to difficulties in the global container market.

Year-end net debt is guided to be in the £285 million-to-£305 million range, marking a material reduction from almost £500 million at the end of February 2020 and giving Johnson’s turnaround strategy a fighting chance of success.

‘With a robust stable of focused brands servicing defined elements of the UK consumer market, circa 90% of existing product sales already online, a much improved and resilient linked financial services proposition, plus a strong balance sheet through which to execute its strategy to further strengthen its core brand proposition, improve its digital capabilities and deliver profitable growth over the long term, we can reiterate our emerging feeling for better times ahead at N Brown,’ said Shore Capital.

The house broker’s reintroduced 2021 forecast calls for pre-tax profits of £33.7 million, down from the £59.5 million N Brown generated in the 2020 financial year.

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Issue Date: 15 Jan 2021