N Brown remains optimistic of turnaround as interim profts halved

N Brown, the specialist online and home shopping fashion retailer, impressed investors despite posting half-year results that showed a decline in profits as it shifts its business model from direct mail to digital.

The FTSE 250 group, whose shopping brands include plus-size focused Simply Be and Jacamo, lifted revenues 4.2% to £415.8m but saw operating profits sag 14.2% to £38.8m and statutory pre-tax profits plummet 54.6% to £19.4m, although this had been flagged. Underlying earnings per share were down 14.5% to 9.9p.

Certain exceptional costs largely relating to the closure of 18 clearance stores put a big dent in profits, while underlying profits were also hit by £3m marketing spend allocation for the autumn-winter campaigns landing in the first half rather than the second, as well as increased operating costs from seven new Simply Be and Jacamo stores and increased depreciation and amortisation spending due to investments in new systems.

But there was plenty of good news within the results, with chief executive Angela Spindler's transformation delivering tangible results, including online penetration up 5 percentage points to 63% and a strong performance from Simply Be and Jacamo, with product revenue for both up 21%.

While the Financial Services business, which offers customers credit on purchases, saw revenue slip 0.4% Spindler said it remained "in good shape" as the quality of the credit book continues to improve.

A dividend of 5.67p per share is proposed, reflecting management's broad confidence in the company's financial strength and future prospects.

Spindler said: "We are pleased with the performance of our power brands. JD Williams delivered an encouraging performance, as the improvements we are making begin to take effect. For example, new customer online penetration increased by 21 percentage points to 74%."

She reiterated her previous guidance that this year will be significantly weighted towards the second half.

"H2 has started well, with a pleasing performance in September, in line with our expectations and underpinning our confidence in the full year outturn."

House broker Shore Capital has left its full year 2016 expectations unchanged, looking for pre-tax profits of £86.5m and EPS of 24.5p, but admitting that "delivery of which will require a return to strong double digit growth in both measures" in the second half, which is helped by the weak third-quarter comparative figures last year.

ShoreCap also continued to expect a maintained final dividend payment of 8.56p to underpin the healthy 4.5% forecast dividend yield.

Analyst Kate Calvert at Investec was mostly positive, but was unwilling to move from her 'hold' rating until there is more clarity over the success of the restructuring. She said: "Increased disclosure, particularly on financial services, is welcomed and the business appears on track to resume growth in 2H when up against very weak comparables. While an undemanding valuation limits downside risk, the modernisation programme disruption means the ongoing underlying profitability of the business is not yet clear. "