RE: Was thinking about getting in again but...11 Jan 2021 21:42
Micky, I somewhat disagree with your initial post where you say they are ultra cautious when it comes to marketing. Actually if you look at results of years gone by you will see that N brown spent a much higher proportion of revenue on marketing than literally everyone else. They’ve been there and done that, they have essentially admitted that this was to offset a decline in catalogue sales. At first they didn’t really know what they were doing when it came to online marketing, threw an awful lot, over £150m a year at it, and it did lead to some nice revenue growth.
However, when they reviewed said marketing they found out that there were vast amounts of unprofitable marketing, spending too much on customers that only order infrequently. They could and have recently improved profitability by reducing this marketing spend, of course that has an impact on top line revenue but is beneficial for the bottom line. You alluded to it yourself, n brown will likely never be a boohoo and there’s a reason boohoo is on a pe of 53 and n browns is so low.
When you’re comparing marketing you need to factor in the target market, yes they could do more social media but don’t forget for the majority of the brands the target market is much older and large amounts of those customers still don’t use social media at all, although that does mean greater opportunity in the future. They’ve invested heavily in SEO with a whole new team just a couple of years ago, but these things take time and don’t make an impact overnight.
In my opinion, people need to stop viewing this as a growth share and comparing it to the likes of boohoo which has a completely different trajectory. Instead it should be seen as a stable company with potential to grow perhaps comparatively slowly in underserved markets, but in normal times is a strong dividend payer and a very profitable business.
The success of n brown through covid has been very much overlooked in my eyes just because of the drop in revenue, but almost every company would have similar drops if they reduced their marketing by circa 40%. What’s important for a non growth share is the profit, and it’s likely that this financial year we could be in line for record breaking profit, even with covid and a huge financial services provision and so I think their performance should be applauded.
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