N Brown unveils partnership with Amazon as online transformation grows

N Brown, the specialist clothing retailer, grew underlying first-half profits well ahead of analyst forecasts as its shift to online sales continues to gains traction, although at the statutory level slipped to a £27.6m loss.

Once a stodgy catalogue retailer, the company's transformation to a growing online force for plus-size clothing is gaining momentum, with significant market share gains made in ladieswear against 2017's subdued consumer backdrop and new partnerships were revealed with Amazon Fashion, Namshi and Debenhams to sell 'capsule collections' online.

With online penetration further increased to 72%, chief executive Angela Spindler felt the time was right to set out three new "growth levers" to drive future performance.

"Our transformation into a flexible, online retailer continues to benefit all aspects of our business and we are today sharing our three growth levers going forwards. These are continuing to gain share in the UK, growing internationally and working in partnership with other companies to offer even more choice to our customers," she said.

The first of the 'levers' is to gain a greater share in the UK apparel market, which Spindler said would be driven by improvements in the customer experience, product offer and "brand cut-through", plus the introduction of a number of third-party brands on its various websites, many of which will be extended to larger sizes on an exclusive basis.

The second is international expansion, with the USA the first priority, with moves into other countries initially through 'Global Ship Anywhere' technology that will kick off by the end of the financial year.

Third is 'partnerships', which includes selling "capsule ranges" on other retailers' sites, on both a wholesale and marketplace offering, while a significant growth opportunity is seen in "influencer marketing" where brands such as Simply Be will work together with bloggers and other opinion formers to improve that cut-through and strengthen customer connection with its brands.

Total revenues in the 26 weeks to 2 September of £453.4m were up 5.6% on the equivalent period last year, with product revenues up 7.5% and financial services inching 1.1% higher.

Adjusted earnings before interest, tax, depreciation, amortisation was pretty much flat at £49m, with underlying profit before tax of £32.2m, excluding exceptional items and unrealised currency movements, which was up 1.8% on last year and well ahead of the £29.5m City consensus.

At the statutory level, the FTSE 250 group slumped to a £27.6m loss due to previously announced exceptional costs of £54.9m, of which £40m was for customer redress for a "flawed" insurance product sold to customers and £13.8m for store closures, with the remainder relating to an ongoing tax dispute with the HMRC.

Earnings per share excluding those items were down 2% to 8.77p and the interim dividend was maintained at 5.67p.

"We made significant ladieswear market share gains against what remains a subdued consumer backdrop," said Spindler, who has led the turnaround of the group's fortunes.

She noted that, as with other retailers, forex rates represent a headwind and this was particularly felt in the first half.

Spindler said current trading was "on track with our plan" and also provided improved guidance for the full year, with product gross margins tightened but still negative and financial services margins improved, although operating costs are seen rising 4.5-5.5% from the previous 3.5-5.5% guidance plus an extra £2m exceptional costs in the second half as a result of the ongoing tax disputes with HMRC.

Net debt is also expected to be higher, at £325-335m, compared to £300-320m previously, reflecting exceptional costs and growth of the customer loan book.

N Brown shares, having recently hit an 18-month high, shot lower on Thursday and by 0845 BST were down 3.6% at 337.4p.

Analyst Darren Shirley at house broker Shore Capital forecast £81.2m PBT for the full year and said he expects the consensus to edge up from £77.7m.