N Brown shares plunge amid margin concerns

Angela Spindler

Shares of Manchester-based fashion retailer N Brown Group — whose brands include JD Williams, Simply Be and Jacamo — fell about 12% after it cut its product gross margin forecast for the fiscal year amid spending on promotions to help sales.

N Brown said it expects full-year gross margin to be down between 225 basis points and 250 basis points compared with its previous forecast of a drop of 70 basis points to 120 basis points “predominantly due to higher promotional activity.”

Nonetheless, in a trading update covering the 18 weeks to January 6, N Brown said group revenue rose 3.2%, online revenue was up 9%, USA revenue jumped 22% and full year profit expectations were unchanged.

N Brown CEO Angela Spindler said: “I am pleased with the trading performance during the period, with 2.7% product growth following 5.9% last year.

“We delivered another record breaking Christmas and I would like to thank our colleagues for working so hard to make this happen.

“Simply Be was our standout brand, up 14.5%.

“We saw strong progress across our key strategic indicators, with online revenue up 9%, Power Brand revenue up 7.3% and the USA up 22%.

“The fashion market remains competitive and we invested in promotional activity across our brands and product categories, which successfully delivered market share gains.

“Financial Services continues to perform strongly, driven by the ongoing improvement in the quality of our loan book, which adds resiliency to our group in more challenging macro-economic conditions.

“We are confident in achieving our overall profit expectations.

“These remain unchanged, although we expect the shape of our results to be different than previously anticipated, as reflected in our revised guidance.”

Analysts at Peel Hunt wrote to clients: “N Brown’s Q3 sales performance was broadly in line with market expectations, with notable highlights including an impressive 14.5% increase in Simply Be revenues against strong comparatives.

“Product margins were hit over peak in a more promotional environment, which is not a complete surprise.

“However, the eye-catcher is the 800bps+ rise in the H2 Financial Services margin, driven by the introduction of lower minimum payments and lower provisioning from a better performing debt book, helped of course by lower minimum payments.

“This keeps consensus unchanged.

“Sadly, this takes on the appearance of financial engineering rather than a genuine improvement in the quality of earnings.

“Looking ahead, we see margin risk on both FS and product; more forecast risk ahead.”