N Brown sets out gloomy outlook as orders fall

N Brown (BWNG) shares were unsurprisingly marked down by 14 per cent after the Aim-traded online clothing and footwear retailer unveiled an uninspiring set of results amid what it referred to as “challenging online market conditions”. Post-pandemic online trading trends were indeed apparent across the company’s key performance indicators, with order numbers down by 15 per cent to 8.7mn and active customer numbers falling by over 10 per cent to 2.6mn.

As well as the revenue contraction and pivot to a pre-tax loss, the board warned that the “challenges of a high inflationary environment and low consumer confidence” will continue to impact performance. Management guided for another sales fall in 2024, with house broker Shore Capital forecasting a 7.6 per cent decline in the key product revenue stream. 

A positive highlight was the 180 basis point uplift in product gross margin to 44.4 per cent, however overall gross margin and the cash profit margin fell by 310 and 480 basis points, respectively. 

The statutory loss was driven by legal fees and impairments. At least some financial certainty was delivered by the £49.5mn settlement in January of the legal dispute between Allianz Insurance and the company’s subsidiary JD Williams, which concerned issues around historic payment protection insurance (PPI) redress. A non-cash impairment of £53mn, meanwhile, was recorded against intangible and plant and equipment assets due to the weaker financial outlook.   

Shore Capital hopes that management’s strategy will ultimately “yield a resilient, profitable, cash-generative and growing business, so reversing the trajectory of recent times”. We see little evidence of that as things stand. And with the broker rating the shares at 18 times its 2024 earnings forecast, significantly above the five-year forward price/earnings (PE) average of nine times according to FactSet, we remain bearish. Sell.

Last IC view: Sell, 22p, 6 Oct 2022