In both the UK and overseas, waist lines are widening which is increasing the girth of the market for plus-sized clothes. N Brown (BWNG) has made a success of selling garments in this niche market for years and it now looks like growth rates could be about to swell. That's because new chief executive Angela Spindler is on a mission to take N Brown to the next level, with a strategy focused on broadening the appeal of the brand in the UK and expanding into the large and lucrative US market. The changes, which are already afoot, are expected to lead to double-digit sales growth in the 2015-16 financial year. Given the company's deep understanding of its market, we think N Brown stands a real chance of success. What's more, with the shares off previous highs, there's now a good opportunity to buy into this well-run company as it establishes a compelling growth story.
- US expansion
- New growth strategy
- Cash payments allowed
- Niche market
- High rating
- German exit
Ms Spindler's ambitious plans for N Brown start with the UK. Perhaps the most important change so far, which was introduced in February, has been to allow customers to pay with cash rather than store credit. This has been a key reason for Next's (NXT) Directory success since 2010, according to Investec analyst Kate Calvert, as sales there took off when it started accepting cash payments. It's early days for N Brown, but so far the results are encouraging with 30 per cent of new multi-channel orderers settled in cash.
A massive investment in IT systems is also under way, encompassing everything from warehouse management and back office, to website functionality and improved delivery times. Already, web page load speeds have halved and 'click and collect' has been introduced across the country. This investment is critical because it will create a foundation from which N Brown can operate as a lean, high-tech 'omni-channel' business offering customers the kind of service they now expect.
Physical store roll-outs form another plank of N Brown's plans. Underlying sales from the existing nine stores grew a whopping 35 per cent in the financial year to February and a further seven shops will be rolled out before October, including one in London's busy Oxford Street. N Brown is, at heart, a mail-order and online business, but this recent foray into bricks and mortar is important as it builds brand awareness. Finally, this autumn will see the relaunch of N Brown's 'mature' female offer under the core JD Williams brand, complete with more contemporary designs and competitive pricing.
| N BROWN (BWNG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 490p | MARKET VALUE: | £1.4bn | |
| TOUCH: | 489-490p | 12-MONTH HIGH: | 600p | LOW: 418p |
| FORWARD DIVIDEND YIELD: | 3.3% | FORWARD PE RATIO: | 16 | |
| NET ASSET VALUE: | 171p | NET DEBT: | 44% | |
| Year to 1 Mar | Turnover (£m) | Pre-tax profit (£m)* | Earnings per share (p)* | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 753 | 96 | 28.8 | 13 |
| 2013 | 785 | 95 | 28.0 | 13.7 |
| 2014 | 835 | 100 | 27.9 | 14.23 |
| 2015* | 878 | 105 | 29.4 | 15.5 |
| 2016* | 921 | 111 | 30.9 | 16 |
| % change | +5 | +6 | +5 | +3 |
Normal market size: 3,000 Matched bargain trading Beta: 1.06 *Peel Hunt forecasts, adjusted PTP and EPS figures | ||||
The biggest prize of all, though, is if N Brown can take a slice out of the massive $6bn US plus-sized pie. It has operated a website in America since 2010 as a testing ground for the brands. Sales grew 21 per cent to £10m last year and customer numbers shot up, which was impressive given the lack of marketing. Now, having learned from mistakes, the strategy is to focus exclusively on the younger, fashion-conscious Simply Be brand. Thanks to simple measures such as trimming order times and introducing tracked shipping in November, customer re-ordering has since grown 10 percentage points to 35 per cent. A credit facility with a built-in loyalty scheme, commonplace in the US, will go live in July as N Brown uses its beefy margins to trim prices and increase promotions.
Given that the group recently exited from Germany, it seems fair to ask what makes the US so different? Well, apart from the fact that it can leverage the UK cost base to sell in the US, it turns out the competition there really lacks fashionability. Simply Be's trendy clothes are therefore proving a big hit with consumers.
Despite falling off recent highs, the shares are trading on 16 times forward earnings, not exactly bargain territory. But this this is more than justified by N Brown's growth potential. Ms Calvert reckons the group can deliver a step-change in operating-profit growth from 1.7 per cent annually over the past four years to 8.4 per cent in the next three, adding that the premium rating could go further given the way the market is prepared to value premium growth stories and pure online players - a view we agree with.
