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I don't understand why the market values this at such a low price. I appreciate there is a lot of debt and dividends are unlikely in FY21 but they are forecasting profits (and generating cash). It seeems like the BoD are making the required changes to improve results / mitigate any negative impacts of COVID.
I'm in at an average of just under 23p and very happy with that price.
Great post, it does make you question whey spend so heavily on advertising if you make more profit by cutting it out. The company seems progressive with its strategies so I’m sure they will be looking at it.
The company were looking at increasing profits to £125m so covid 19 has been a huge shock so they've reacted by ruthlessly cutting costs, it will be a very different company next year.
To put the marketing into context on another forum I calculated that the gross profit loss from sales down 48% for clothing and up 75% for home and gifts would mean a reduction in gross profit of roughly £25m on an annual basis.
Compare that with an 80% reduction in marketing once again assuming annual and that would be a roughly £125m saving .
So I think it’s incredibly important that you consider both together rather than in isolation. I actually think this could be some of n browns best profits.
I was thinking of this further last night, this is actually the greatest opportunity in recent history for n brown to really reflect on its business and marketing and make some key strategic decisions, some of which I know were already in the works.
N brown has been in a battle of late of constantly trying to prop up its sales and has had to do so through heavy paid marketing. If it steps back for a moment and thinks actually you know what let’s cut back on our marketing further, the sales will inevitably drop but our profit will increase.
This would put n brown on a much stronger base with surely at least £100m profit a year and then it can focus on growing again more sustainably. It would have the added benefit that the warehouse and structure would always be ready to take on the large volume from last experience.
Such a radical decision would not be feasible in normal times as it would be slated by the market but actually in the current situation I think it would make an interesting approach. I believe that’s part of the reason why n brown has made the decision to drop its marketing so much at the moment, sure some of the demand won’t be there so it would have dropped somewhat anyway but such a large scale drop I think there’s a bigger reason behind it.
I’d be interested to get other people’s opinion on this though, would you rather sales drop relatively significantly but with a larger profit. Or battle to keep this high sales level and pour more money back into paid marketing?
Clemoc, agreed they do spend a lot on paid marketing more than most competitors however they have recently been investing into more organic for example they recruited roughly 20 SEO heads however sadly growing organic isn’t easy and is more of a slow burner you can’t just throw money at it sadly.
This reliance however is actually why I was so impressed by the trading update. I thought that if you reduce marketing by 80% here as they did sales would be tumbling maybe 50-60%. However that wasn’t the case and overall they actually only dropped 25% which given such a large reduction in marketing I was very pleasantly surprised.
Especially when you have to consider that demand would be down anyway due to the situation in general e.g even Asos sales were down 20%. With no mention of any marketing reduction for them.
Bought in a week or two back. Last year appears to be one of transition for the business from high street to online sales.. i can see a very bright future with This Switch to digital sales at exactly the right time given the change in shopping Methods due to covid restrictions going forward. Happy to wait for the inevitable re-rate back to pre covid levels.
What I find amazing is that the P/E ratio here is likely to be pretty close to 1 following the full year results, compared with boohoo which may be growing but has a ridiculous p/e of more than 70!
Just shows ridiculously undervalued this is I think you’d struggle to find a more undervalued company anywhere
What you also need to take into account with those sales changes is the reduction in marketing, at the last update they said sales were down 25% overall but with a reduction in marketing of 80%. That is a huge amount and more than a 100m saving on an annualised basis!
Clemoc - Latest guidance on FY20 is as follows:
Preliminary results for the year ended 29th February 2020
The Group's audit is being conducted on an entirely remote basis and N Brown currently expects to release its results for the year ended 29th February 2020 in mid to end June 2020. A further announcement will be made in due course.
Brown Group, by focusing online, seem poised to be big winners here. Shopping (and quesuing) in socially distanced stores is no fun and a lot of their bricks and mortar competitors are going under. Either way it looks as if Brown Gp have a bright future, whether the pandemic ends quickly or lingers.
Overtime is back on for the first time this year, the company is basically selling down existing stock rather than buying in new stock.
I agree, also we're all going to be fat after lockdown so will need clothing up to 5XL thats available at Jackamo!!
I've been buying shares in BWNG this week, having researched I don't understand why the valuation is so low. They generated profit exc exceptionals over the past few years over the latest valuation. They appear to have enough cash / credit facilities to keep going for the short term and would expect to be less affected by CV19 than the high street due to online presence.
What are others thoughts on the future? I guess we'll see when FY20 results are released.