One of the day’s big gainers is clothing retailer N Brown, the owner of Simply Be, Jacamo and Fifty Plus.
Its shares have jumped 8% to 232p, making it the biggest rise in the FTSE 250, after it reported a 1.6% fall in first quarter revenues, much better than analysts had been expecting after its full year caution and two profit warnings last year. The company unveiled a better than forecast 6% rise in online revenues, and said it had seen an increase in new credit customers, pushing finacial services revenue up 3.4%.
The company said in April that poor weather had hit demand for spring and summer clothing, which Brexit fears had led to subdued consumer spending. Now chief executive Angela Spindler said:
Overall trading in the quarter has been in line with our expectations and our guidance for the full year remains unchanged... Our systems transformation programme.. remains on track in all respects. Looking forward, our new systems will give us a strong platform to capitalise on the significant growth opportunities ahead.
Analysts were, for the most part, positive. James Collins at Stifel said:
Management cautioned at the time of full year results that the start of the year “had been subdued, with sales lower year on year”, citing a tough industry backdrop and the lag effect of a change in marketing phasing. Hence first quarter product like for likes of -1.6% should be no surprise to the market and is in fact slightly higher than consensus expectations. Alongside this, financial services revenues continue to show healthy growth. We expect no change to consensus forecasts and, having reacted harshly to downgrades earlier in the year, we think today’s statement should provide some reassurance. We retain a hold recommendation.
Jefferies was also upbeat, correctly saying:
Brown’s first quarter trading deserves a strong share price reaction, in our view. This was a challenging trading period, but we think product revenues rebounded into positive growth over the last 6 weeks. At 8.4 times PE and 6.6% dividend yield, the shares appear braced for material disappointment and so have good reason to bounce. The lasting takeaway here, we think, is that through the transformation programme, Brown is gaining flexibility to trade through tough markets.
Citi’s Assad Malic said:
N Brown has reported a better than expected first quarter update, suggesting an improving run rate in product revenues towards the end of the quarter given the volatile clothing market.
But at Peel Hunt, analyst John Stevenson cut his target price from 275p to 230p:
N Brown has reported first quarter sales performance in line with expectations. Product sales have been on an improving trend over the quarter, reflecting the more favourable weather conditions, which have lifted apparel sales across the market. The attrition from the traditional brands continues to offset growth in the power brands. Our main concerns rest on gross margins and the risk of further investment in the second half.
N Brown shares have fallen by around 30% over 2016 and look optically cheap with a single digit PE and around 7% dividend yield. While there is more limited downside, we continue to retain concerns over forecast delivery, particularly with respect to gross margin. Guidance points to improved margin momentum and profit growth in the second half. The company has taken on greater currency cover since the last update, but unlike most retailers, N Brown is still not full covered. Aside from currency volatility, we are concerned on the impact this may have on underlying margins for autumn/winter before the season has started (ie the assumed rate for the buying team may be very different from the actual).
