N Brown confident despite subdued start to year

Trading has remained subdued at N Brown but nowhere near as bad as analysts has been fearing, lifting shares from their four-year low with management confident that a second half improvement will see the clothing retailer hit its full year targets.

Group revenue was down 0.2% in the first quarter, with the analysts consensus having pointed to a 2% fall.

Chief executive Angela Spindler said a 1.6% decline in product sales in the 13 weeks to 28 May was "satisfactory" when viewed against the challenging clothing retail sector backdrop and was counterbalanced by a 3.4% increase in financial services revenue driven by new credit customers.

The slow growth at this stage is much lower than forecasts of 3-4% for the full year, which are based on Spindler's confidence that trading will strengthen over the year as her new marketing strategy takes hold.

Part of the ex Debenhams and Asda director's efforts to drag the dowdy mail-order group into the digital age, she has shifted marketing spend from large TV ad campaigns to a more steadily increasing investment in online and mobile.

As such, Spindler may be slightly disappointed that online revenue growth slowed to 6% from the 15% last year. Online sales penetration did continue to improve however, up another five percentage points (ppts) year-on-year to 67%, from 65% at the year end. Moreover, new customer demand generated online, a leading indicator for the group overall, was up 8ppts to 76% on the same period last year and from 72% in February.

Spindler noted that the three 'power brands', JD Williams, Simply Be and Jacamo, continued to outperform the wider group, but overall revenues were held flat because of a weak performance from the 'Fifty Plus' brand that is being folded into JD Williams.

"Revenue from our traditional segment has continued to decline," she acknowledged, alluding to a mid single-digit decline in product revenues, "but remedial actions are now well underway."

Improvements are being made to the offer and customer proposition in the traditional segment - which covers Julipa, Ambrose Wilson, Premier Man and House of Bath - and while management are encouraged by early signs they predict it will take until the second half for these actions to have much impact.

Adjusting marketing spending and promotions resulted in a low single-digit decline in average selling price (ASP), but this was more than offset by an increase in average units per basket.

House broker Shore Capital said the relatively subdued trading reflected the challenging UK apparel market and the planned re-phasing of marketing spending.

"However, we are pleased to note the performance has been far more resilient than expected across both product and financial services, with a strongly improving trend through the period," analysts said, leading them to leave full year forecasts unchanged at £85.2m profit before tax, 24.1p earnings per share and a 14.2p dividend.

Broker Numis felt that while there was "clearly an improving trend through the quarter", benefiting from promotional activity which resulted in a circa 3% decline in ASPs and an equalisation in marketing spend, there was "little drag" from the marketing phasing in Q1.

"While the improving top-line trend is encouraging, we suspect these actions to stimulate growth will see H1 margin come under pressure, consistent with commentary that the H1/H2 profit split is likely to be 'broadly' similar to FY16; we see scope for FY17 PBT to be increasingly H2-weighted," Numis said.

After hitting their lowest level since 2012 earlier in the week, Thursday saw the shares up 8% to 231.4p just after 1045 BST.