N Brown's online focus hits sales but margins hold up
N Brown, the plus size and mature-lady clothing retailer, reported weaker sales over the Christmas period as it strove to keep profit margins steady.
Group sales fell 1.6% in the 18 weeks to 5 January, down from the 1.5% growth in the first half of the year.
Third-quarter product sales dropped 6% due to a 23% collapse in traditional clothing brands and 5% drop in secondary brands as management continued to scale back spending on offline marketing and recruitment in order to focus on online growth and improving marketing efficiency.
Power Brands sales were flat, though Simply Be and Jacamo saw growth of 1.6% and 5.5% respectively. JD Williams product sales declined 3.3%.
Total online Power Brand revenues increased 6.4% in the quarter, with overall digital sales accounting for 78.5% of total product revenue, compared to 71.0% a year ago.
International operations "began to stabilise" in the period, with revenue down by 5.0% as the company "began to better re-engage with its target customer base".
Financial services revenues, from customers buying on credit, was up 9.7% in the quarter, down from 12.7% in the first half.
Interim chief executive Steve Johnson, who took over when former driving force Angela Spindler stepped down after five years in charge, hailed the "robust" online Power Brand growth and a stable margin performance "in what was a challenging and highly promotional peak trading period".
Despite the highly promotional environment, he was sufficiently encouraged to maintain product gross margin guidance at between 0 and -100bps for the full year.
The group still expect that marketing costs to increase £1.5-2m this year and by £6-9m per year from the next financial year, after the HMRC ruling over VAT recovery of marketing costs. The group said it was still considering its position with respect to an appeal.
Shares in N Brown, which lost around two-thirds of their value last year, were down almost 7% to 94.1p on Thursday.
House broker Shore Capital said the update contained "no nasty shocks or surprises".
"Management’s strategic priorities to drive only profitable sales, deliver operational effectiveness and the focus on the online consumer has resulted in 6% decline in Product sales. However, tighter sales & promotional activity, coupled with more data driven marketing spend has resulted in a stable gross margin guidance (which we welcome) and with operating cost guided down further, financial expectations are unchanged."
The broker forecasts pre-tax profit of £81.2m and earnings per share of 22.3p.