A slightly disappointing update from N.Brown today with first half revenues expected to be down by 0.6% or 0.5% in like for like terms, having been up by 2.6% and 2.%% after 15 weeks when they last updated the market. This seems to have been driven by a poor second quarter on the back of planned changes to some ranges and their marketing spend which was moved into customer recruitment and has been re-phased to the second half. This has led to change in the pattern of marketing spending from a 50:50 to a more normal seasonal ratio of 40:60 for Spring/Summer vs. Autumn/Winter.
They also reduced the range of non core and electrical items in home & gifts which led to a 9% fall in sales in that category as this reduced credit sales in higher risk areas and also reduced their finance income too. On all these changes they say:
"This is a transitional year in which we are moving further away from a traditional mail order model and the changes we are implementing have had the effect of slowing sales growth in the first half and deferring some of our annual sales into the second half."
In addition they are also implementing a systems development programme and launching a credit based offering in the US. So lots of changes under the new chief executive which seem to have contributed to a disappointing first half performance and leave them with a lot to do in the second half, although they claim to be on track to hit their full year forecast, although I note analysts forecasts have been trending down this year since April and may continue to do so after this update.
Summary & Conclusion.
The shares have reacted negatively to the announcement this morning being down by around 3 to 4%. This leaves them on around 14x with a 3.7% yield before any changes on the back of these numbers. So not especially cheap and they have now left themselves with much to do and some risks in terms of delivery in the second half which could lay them open to having to issue a profits warning if things don't pan out as they expect.
Probably worth holding if you are in them as they are looking fairly over sold, albeit they don't look like a bargain yet. Therefore if you are not currently holding them, I would suggest it is probably worth waiting to see how the second half turns out as it looks like the forecasts and the share price may continue to drift down.