N Brown, the fashion retailer saw its share price drop over 13% in mid-morning trading. Despite enjoying a record-breaking Christmas, the company reported deteriorating margins.
The group now expects gross margins to decline by 225 basis points to 250 basis points over the full year, compared to previous guidance of a decline of 70 basis points – 120 basis points, primarily due to higher promotional activity.
There were some positives in the company’s latest trading statement. Financial services gross margin guidance now is for an improvement of 5% to 5.5%, up from 1% to 2% previously, as a result of a further improvement in the customer loan book.
Group revenue in the 18 weeks to 6 January 2018 was up 3.2% year-on-year. Revenue from the US was up 22% while online revenue was up 9%
Product revenue was up 2.7%, down from growth of 7.5% in the preceding 26-week period, while revenue from financial services was 4.6% higher than the year before.
Highly competitive market
Commenting on the latest results, Angela Spindler, CEO, said: "Simply Be was our standout brand, up 14.5%. We saw strong progress across our key strategic indicators, with online revenue up 9%, Power Brand revenue up 7.3% and the USA up 22%.
“The fashion market remains competitive and we invested in promotional activity across our brands and product categories, which successfully delivered market share gains.
Spindler added: 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."
In mid-morning trading N Brown shares were down 13.3% to 241.60. The consensus broker view on N Brown has swung from ‘hold’ in December 2017 to ‘neutral’ now.