Plus-size clothing retailer N Brown jolts City with squeezed margins

● Promotional activity hurts financial returns as ladieswear disappoints

Shares in plus-size retailer N Brown plunged more than 14 per cent on the stock market yesterday amid investor concern over promotional sales squeezing profit margins.

The company reported a 3.2 per cent rise in group revenue over the 18 weeks to 6 January, down from the 4.1 per cent increase logged a year earlier. N Brown’s product division – covering clothing, footwear, accessories and home goods – was the biggest drag, rising just 2.7 per cent versus 5.9 per cent last year, with ladieswear sales up just 0.7 per cent.

The group, whose brands include JD Williams, Simply Be and Jacamo, said that it had gained market share as a result of promotional sales, but jolted the City by cutting profit margin forecasts.

N Brown said that it now expected gross margins from its product division to be between minus 225 basis points to minus 250 basis points lower over the financial year, compared with a previous much shallower range of fall between minus 70 basis points to minus 120 basis points. The gross margin last year was 54.7 per cent.

Retail analyst Nick Bubb said a better performance from N Brown’s financial services arm had enabled the retailer to keep full-year profit forecasts unchanged.

“Today’s update from the online fashion business N Brown proclaims that its 2.7 per cent product revenue growth was ‘a good performanceinachallengingmarket’,” Bubb said. “But the market is unlikely to be happy with the news that product gross margin was much worse than expected due to higher promotional activity.”

Financial services revenue for the period rose 4.6 per cent. N Brown chief executive Angela Spindler said: “Financial services continues to perform strongly, driven by the ongoing improvement in the quality of our loan book, which adds resiliency to our group in more challenging macro-economic conditions.

“We are confident in achieving our overall profit expectations. These remain unchanged, although we expect the shape of our results to be different than previously anticipated, as reflected in our revised guidance.”

Simply Be was highlighted as the company’s “standout brand” over the period after revenuesjumped 14.5percent, while JD Williams and Jacamo saw sales increase 3 per cent and 4.6 per cent respectively.

Ladieswear’s meagre rise rise in sales was easily beaten by menswear, up 4.1 per cent, as well as footwear and accessories, up 9.6 per cent.

N Brown’s shares closed down 17 per cent at 231.4p.