N Brown final results beat recently lowered expectations

LONDON (ShareCast) - Shares (Berlin: DI6.BE - news) in N Brown (LSE: BWNG.L - news) bounced back after final results from the internet and home shopping business were not as bad as been feared. Having in March issued a "slight" profit warning, results for the year to the end of February were slightly better than expected, with revenues almost flat at £818m and profit before tax, exceptionals and currency movements down 13% to £86.2m.

Costs were kept tightly controlled but gross margins were down 60 basis points to 52%, driven by tactical markdowns and price investment, partially offset by the benefit of better buying.

Underlying earnings per share (EPS) were down 26% to 20.49p and the total dividend was held at 14.23p.

Statutory pre-tax profits and earnings per share both fell 21% to £76.3m and 20.49p respectively.

Chief executive Angela Spindler acknowledged that the company's profit took a hit as the business began the process "comprehensively modernising" from top to bottom and adopting "a digital-first mindset and to ensure that we are fit for the future of retail".

"Step (Shenzhen: 002527.SZ - news) -changing the way the business operates and goes to market in some key areas proved more disruptive than anticipated and this, combined with a weak Autumn trading period across the sector, led to a profit performance below expectations. We are, however, improving the sustainability of future profit growth and look to the year ahead with confidence." Flat total sales reflected a shift to product revenues away from financial services revenues, with product up 1.1% to £582.9m and now 71% of group sales.

With internet sales in the fourth quarter almost two-thirds of total home shopping sales, the web now represents 59% of home shopping sales, up from 57% last year.

The US performance was better, with operating losses almost halved from £4.7m to £2.5m after a recruitment freeze and store revenues up 64% to £13m.

Broker Canaccord noted that profits, while ahead of recently lowered expectations, were 18% below the consensus forecast of £105m at the start of the year.

With current trading in line with expectations and management reiterated their guidance for margins and costs from March, analysts left their pre-tax profit forecasts for 2016 at £87.5m.

Management did mention that the tax rate was expected to be slightly lower, which should benefit EPS but that there will be further exceptional costs of £5-7m.