Brown (N) Group (BWNG)


Welcome rally at N Brown

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N Brown plus size clothes restructuring to online rally begun technical trend
The turnaround at N Brown (BWNG) has begun. At least that's the underlying message from the FTSE 250-clothes retailer on Thursday following decent first-quarter results. It's certainly got some good brands and a heavy investment in its online business is repositioning the old catalogue company in a fiercely competitive market.

But its traditional clothing ranges are a drag and sales are down, albeit in a difficult market, and it's still too early to claim this two-year sell-off is over.

After a year of positive sales momentum, group revenue fell by 0.2% in the 13 weeks ended 28 May, as a 1.6% drop in product revenue was only partially offset by 3.4% growth at the smaller financial services arm, which offers credit to customers.

Transforming its portfolio of catalogue collections into a strong online offering is desperately needed to compete with the opposition. This comes at a price though, and N Brown invested over £70 million in its digital systems and warehouse projects last year, with up to £40 million pencilled in for this financial year.

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But the investment is paying off. Online traffic is up 11%, with smartphones and tablets now generating 69% of all traffic, up over 5 percentage points year-on-year. Online revenue has jumped 6% and the website is now responsible for 76% of first-time customers, up 80 percentage points on the year.

Better products and marketing campaigns in its "power brands" - JD Williams, Simply Be and Jacamo - failed to offset the difficulties in its Fifty Plus line, though. Brown's more traditional brands are struggling too, and although measures have been taken to turn performance around, it will take time to see the benefit.

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Testing support

Andrew Wade, an analyst at broker Numis Securities, has maintained his 2017 forecasts, pencilling in 3% revenue growth to £896 million and a 4% drop in pre-tax profit to £85 million in the 2017 financial year, giving earnings per share of 24.1p. Rating N Brown shares a 'hold', Wade thinks they're worth 250p.

Surging 167% from 2012-2014, Brown's knock-out two-year share price gains have completely unwound. Under fresh pressure from a new bearish trend-line begun in early March, the shares had fallen 42% since to a four-year low of 214p Wednesday. They're up 7% on these results, however, at 229p, breaking back above the trendline.

N Brown trades on a price/earnings ratio of 9.5 times based on Numis estimates for 2017. There's also a prospective dividend yield of over 6%. This looks too good to be true, which means it probably is. Cautious investors will likely demand further evidence of a bounceback before committing here.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.