Shares in specialist fashion retailer N Brown (BWNG) cheapened 5.5% to 104.4p after the JD Williams-to-Jacamo brand owner warned it needs to set aside an extra £20m-to-£30m to cover PPI redress claims.
Manchester-headquartered N Brown also increased its full year net debt guidance from £440m-to-£460m to a £460m to £490m range as a result.
READ MORE ABOUT N BROWN HERE
The online clothing purveyor has already paid out £108m in financial redress to date. This includes an additional £22.6m provision in the second half of the previous financial year.
And with the PPI deadline having recently passed (29 Aug 2019), the retailer is now ploughing through a recently received flurry of additional PPI information requests and complaints (PIRs).
Having experienced a ‘significant increase’ in PIRs in the days running up to and including the 29 August deadline, N Brown warned that ‘although it is not possible to be precise about the final outcome’, it now believes ‘it will be necessary to make an additional provision in the range of £20m to £30m in its half year results for the six months to 31 August 2019’.
In fact, the Jacamo-to-Simply Be brands owner received ‘more than 10 times the average volume of PIRs seen in the months prior to this with circa 110,000 in the month and more than 40,000 in the final week before the deadline’.
Today’s provision-related pain represents an unwelcome setback for N Brown. Despite challenging retail market conditions, new chief executive officer (CEO) Steve Johnson appears to have stabilised the business.
He recently reported a solid first quarter performance from his charge, which delivered digital revenue growth across the JD Williams, Simply Be, Ambrose Wilson and Jacamo brands ‘as we continue to improve our customer offer whilst managing the decline of our legacy offline business.’
Johnson conceded ‘the retail market remains challenging’, yet insisted ‘we have a clear strategy to deliver profitable digital growth and our full year expectations are unchanged.’
WHAT THE BROKERS ARE SAYING
Following today’s PPI redress news, Shore Capital leaves its profit expectations unchanged ahead of the first half results (10 Oct), although the house broker notes ‘the potential for slight downward pressure from higher finance costs.
'Whilst clearly unwelcome, we reiterate that full year 2020 is expected to be a watershed year for N Brown as it will see the end to the painful cash headwinds from legacy issues that have dogged the company in recent years, so allowing for more robust underlying cash flow credentials to come to the fore.’
Numis Securities points out that within its coverage, ‘the only other retailer with exposure to PPI claims is Marks & Spencer (MKS). We believe the total PPI payouts to date have been £230m.
A similar increase in cost at say 20% of total payouts suggests a potential risk of an additional circa £40m of exceptional costs’, around 1% of the struggling high street stalwart’s current market cap.
