Brown Group Regulatory News (BWNG)

16 January 2020

TRADING STATEMENT FOR THE 18 WEEKS TO 4 JANUARY 2020

Continued digital revenue growth with particular strength in Womenswear

N Brown Group Plc today announces the following trading update covering the 18 week period to 4 January 2020.

Highlights:

·; Digital revenue +2.5%1, driven by strong growth at Simply Be & Ambrose Wilson

·; Product revenue -4.0%1, as we continue the managed decline of legacy brands

·; 87% of product revenue now digital, an increase of 5ppts2

·; Financial Services revenue -4.6%, due to lower product revenue and impact of previously announced measures undertaken on changes to our lending practices

·; Predominantly due to a lower than expected benefit from the IFRS9 non-cash provision estimate, combined with lower Financial Services revenue and a highly promotional market, we now expect FY20 adjusted profit before tax to be in the range of £70m to £72m5

Revenue performance

1 Excluding US

2 Compared with 18 weeks to 5 January 2019

3 Simply Be excludes US revenue this year and the prior year 

4 Menswear is the Jacamo brand

5 Current range of consensus FY20 adjusted profit before tax forecasts is £78.0m to £84.1m

Product

Within Womenswear, Simply Be delivered a strong performance with digital revenue growth of +13.1%. The performance was driven by increased sales of 'party tops' and our athleisure range which benefitted from closer to home, more reactive sourcing with lead times reduced by four weeks. This was complemented by the Simply Be App with demand penetration increasing by 76% year-on-year. The New Icons campaign, higher sales through partnership channels and more digital traffic being driven by social media also contributed to Simply Be's strong performance.

JD Williams digital revenue increased by 0.4% and 82% of its revenue is now digital. Ambrose Wilson delivered strong digital revenue growth of 7.9% in the period and 63% of its revenue is now digital, an increase of 10ppts year-on-year. The performance of Ambrose Wilson in the period was driven by our 'Cruise' and occasionwear ranges performing especially well combined with focused digital campaigns and targeted reduction of paper marketing.

Menswear digital revenue, through the Jacamo brand, increased 3.2% in the quarter, against a strong performance in the comparative period (Q3 FY19: +6.8%) when sales were boosted by the clearance of stock from store closures. Jacamo's growth was driven by the introduction of new premium brands and we were pleased to renew the Soccer AM sponsorship in the period.

As expected, Product brands revenue declined in the quarter in line with our strategy of scaling back unprofitable offline marketing and recruitment.

Inventory levels at the end of the period were down 6% compared to the prior year reflecting our continued disciplined approach to inventory management.

Financial Services

In response to wide-sweeping regulatory intervention across the financial services sector, the Group continued to make a number of significant changes to the way it manages its debtor book. These have resulted in a reduction in its year-on-year debtor balances which declined by 2.9% in the first half of the year and by 2.6% at period end. Following a decline of 1.4% in the second quarter, Financial Services revenue fell by a further 4.6% in the period, due in part to these lower balances and associated interest income and due also to a fall in administration fees as fewer customers entered into arrears.

We expect that the steady improvement in the quality of our debtor book and the changes that we have made in response to the new regulatory environment will have further medium-term consequences for the performance of our Financial Services business. Improved credit quality will feed into a reduced IFRS9 bad debt provision; our IFRS9 bad debt provision ratio declined to 11.9% as at H1FY20. This compares with a 17.9% provision when IFRS9 was first introduced. We believe that while further impairment improvement can be expected, the pace of improvement will slow. In addition, changes to our policies and procedures, specifically the embedding of new measures around affordability and the introduction of new rules concerning credit limits - effective March and December 2019 - and persistent debt, which is due to take effect in March 2020 and December 2020, will have a significant influence on the size and shape of our debtor book. The Group continues to assess its strategies to mitigate the impact of these changes, including the phased introduction of new financial products and further reductions in its operating cost base.

Outlook and guidance

Predominantly due to a lower than expected benefit from the IFRS9 non-cash provision estimate, combined with lower Financial Services revenue and a highly promotional market, we now expect FY20 adjusted profit before tax to be in the range of £70m to £72m.5 Furthermore, we expect that the reduced scope for bad debt provision improvements, combined with industry-wide regulatory changes, will result in FY21 adjusted profit before tax being at a similar level to FY20 adjusted profit before tax.

5 Current range of consensus FY20 adjusted profit before tax forecasts is £78.0m to £84.1m

We are providing the following updated guidance for FY20:

·; We have changed the product gross margin guidance for FY20 to reflect the highly promotional market experienced over the peak trading period

·; FY20 Financial Services gross margin has changed due to marginally lower yield from the debtor book

·; FY20 Group operating costs guidance has improved due to continued disciplined cost control, providing further evidence of the sustainable flexibility in the cost base

·; FY20 net debt guidance has marginally increased, primarily due to working capital timings. We expect FY21 net debt to be lower as a result of a lower debtor book and lack of exceptional cash items

Steve Johnson, CEO, commented:

"This has been an encouraging period of peak trading for the business in a highly promotional market, as we delivered digital revenue growth across both Womenswear and Menswear with particularly strong digital growth from Simply Be and Ambrose Wilson as customers responded well to our ranges. Financial Services revenue was down, reflective of our strategic approach to the retail business and continued tightening of our lending criteria.

We are making good progress with our ongoing strategic review and look forward to providing further details at our full year results in April. Our work so far has highlighted the need to have a tighter brand portfolio, a sharper focus on product and a cost base appropriate for delivering sustainable digital growth. At the same time, we will continue to proactively address the accelerating and cumulative external factors which are anticipated to reduce the size of our Financial Services business over the next two years. These will significantly influence the way we will operate our Financial Services business and we are taking proactive measures to ensure that the change is managed appropriately. This is in line with our strategy of becoming a digitally focused, retail-led business.

Our expectations remain that the retail market will continue to be challenging and promotional, but we are focused on our clear strategy of delivering profitable digital growth."

Conference call

A conference call will be held at 08.30am (London time) today for analysts and investors. To register for access, please contact MHP Communications on +44 20 3128 8193 or email NBrown@mhpc.com.

Reporting calendar

We will be announcing our full year results on 29th April 2020.

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