N Brown results show turnaround success, new year brings new problems

Sales in the new financial year have been lower than the previous year due to what is acknowledged as a challenging industry backdrop and the company's new marketing approach of shifting from large TV ad campaigns to a more steadily increasing investment in online and mobile as part of chief executive Angela Spindler's transformation of the business from being mail-order led to digital-first.

Management are confident the new approach to marketing delivers a better return on investment when viewed across the season as a whole, so expect to see performance strengthen over the first half.

From a non-trading perspective, the sterling-dollar exchange rate is predicted to result in a headwind of roughly £3m at the profit before tax (PBT) line.

"Looking forward, whilst we face challenging market conditions for the fashion sector overall, and trading since the year end has been subdued, we remain confident in our ability to make further progress this year," said Spindler, who said the company was midway through its turnaround.

This was indicated as benefits looked to be coming through in the second half of the year when there was 11% profit growth.

This enabled group to generate underlying PBT of £84.5m, a decline of just 2.0% on the previous year and in line with consensus City forecasts of £84.4m, on revenue that increased 3.5% to £866.2m in the 52 weeks to end Feburary.

Earnings per share fell 2.2% to 24.0p, reflecting a higher tax charge.

A final dividend of 8.56p is proposed, resulting in a flat year-on-year total of 14.23p as was expected.

Product sales increased 4.1% and financial services income by 2.1%, with the latter returning to growth through the second half by 4.5%.

Product sales continues to be driven by the focus upon 'power brands', with Simply Be revenue up 15.6% and Jacamo up 14.6%, though though both run rates slowed through the second half. JD Williams product sales were also up 4.7%, but the Traditional Brands declined by 5.5%.

Spindler is confident in the future based on the strong appeal of its 'specialist fit' proposition, continuous improvement in the customer experience and changes in customer shopping behaviour, driven by the targeted marketing campaign.

Broker Peel Hunt said taking lower gross margin guidance and cutting its sales estimates, it expected to downgrade the new 2017 financial year by at least £10m to £81.1m, for 23p EPS.

"The shares offer a decent yield, nearing 5%, but are struggling to get traction, we find ourselves downgrading forecasts again with little confidence in the turnaround," analysts said, cutting their rating to 'reduce'.