N Brown cuts profit guidance

Online clothing and footwear retailer N Brown’s (BWNG) shares slumped by double digits on the back of these results in which the company pinned a revenue and profit slump on weak consumer confidence, revealed poor post-period trading, and slashed its profit forecast for the next financial year. This is an unappetising combination.

Management pointed to “more caution from consumers around discretionary spending, record low consumer confidence and an ongoing reduction in disposable incomes” as the background to a drop across key metrics.

Demand was certainly hit, with total website sessions down by 3 per cent to 117mn, orders plunging by 10 per cent to 4.5mn, and sales struggling across the board. Despite average item values rising by 14 per cent, product revenue fell by 5 per cent to £211mn in the half. The frail performance in the second quarter – the company reported a 9 per sales cent drop – continued into September. Financial services revenue was down by 4 per cent to £120mn as a smaller debtor book had its impact. 

Peel Hunt analysts cut their target price from 60p to 15p and said that the company “continues to wrestle with the challenge of modernising the business to deliver a flexible cost base that can generate meaningful returns on product revenues that have been managed down by 35 per cent over the last four years”. We aren’t convinced N Brown is up to the challenge. Management now expects adjusted cash profits for 2023 to come in at around £60mn – it previously forecast profits of a similar level to 2021 (£87mn). We also remain wary of the ongoing legal dispute over historic PPI sold by subsidiary JD Williams. Sell.

Last IC view: Sell, 36p, 18 May 2022