- Cost inflation and spending squeeze clobber profitability
- Softer sales persisting in new financial year
- Investment in digital transformation continues
Shares in N Brown (BWNG:AIM) slumped 15% to 23.4p after the struggling online clothing and footwear retailer reported an 83% plunge in annual adjusted pre-tax profit to just £7.5 million as the company was clobbered by ‘challenging’ market conditions and unprecedented cost inflation.
The Simply Be, Jacamo and JD Williams brands owner said the softer product revenue seen in last year’s fourth quarter, down 17.8% year-on-year, has ‘broadly continued’ in the new financial year due to poor early spring weather and a strong prior year comparative.
Investors were also disappointed after N Brown warned it expects weaker consumer confidence to continue weighing on performance before it sees a return to growth.
PRODUCT SALES DISAPPOINT
N Brown’s product sales fell 6.9% to £433.9 million in a testing year to February 2023.
Revenue from the financial services arm, which allows credit customers to spread the cost of shopping with the company, was down 2.4% to £244.1 million as lower retail sales took their toll.
The online retail channel suffered as shoppers returned to brick and mortar stores and disposable incomes came under pressure from the rising cost of living, although N Brown’s gross margin nudged up 180 basis points last year as the retailer reduced promotions and pushed through ‘measured’ price increases.
On a statutory basis, N Brown lurched from a £19.2 million profit to a £71.1 million pre-tax loss struck after settling a legal dispute with Allianz Insurance and a non-cash, non-financial assets write-down.
WHAT DID THE CEO SAY?
In terms of the outlook, N Brown sees the challenges of high inflation and low consumer confidence remaining throughout the year to next February and currently expects full year product revenue to decline, albeit at a slightly improved rate to that seen last year.
Chief executive Steve Johnson said N Brown has remained ‘adaptable to the trading environment which became more challenging during the year, as inflation impacted both our customers and our cost base. Although volumes softened, we maintained a disciplined approach to trading, with a particular focus on upholding margin despite a promotional backdrop.’
Johnson added: ‘We continued to make strategic progress despite these challenges, increasing investment during the year, and we successfully launched our new mobile-first website for Simply Be.’
While weaker consumer confidence will continue to hurt N Brown’s performance before the company returns to growth, Johnson insisted management remains confident in its strategy and is more focused than ever on ‘the transformational priorities which will deliver the biggest benefits, including new websites for Jacamo and JD Williams, and the delivery of our new financial services platform.’
THE SHORE CAPITAL VIEW
House broker Shore Capital said last year was a period of ‘building upon prior foundational thinking with greater evidence of on the ground delivery. Importantly, the change programme is self-funded, and the business sustains high levels of liquidity.
‘We expect more to come in full year 2024 and thereafter, hoping as does the group’s board, that the completion of the physical and cultural change will yield a resilient, profitable, cash-generative, and growing business, so reversing the trajectory of recent times.’
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