I have closely followed N Brown for just over two years now. Management's strategy has changed, at least, twice every year. The reason why shares are off 15% this morning is the guidance on GM:

"Product gross margin -50bps to -150bps driven by buying in gains, more than offset by FX headwind, clearance of aged inventory and tactical price activity to drive share growth in a challenging market"

On it's own, this doesn't sound good but this is the second year in a row when N Brown has had to reduce prices and clear stock.

Back in late 2014, management realised they were going to miss full year numbers so they announced a clearance and a "one-off" investment in price. Reducing prices did improve the top-line this year but hasn't resulted in sustainable growth.

Again, we ask what is the strategy? At half year, it was "Fit 4 the Future", will this be the fifth strategy change in two years? Management barely comment on the terrible guidance they issued, why? I suspect it is a mixture of denial and ignorance.

Management was pilloried by analysts last year for constantly switching their use of KPIs to make it look like the business was growing. Old habits die hard it seems as, even after the company was forced to pick seven "granular KPIs" and stick to them, management has started moving the goal posts again.

There are other examples, the most blatant was this:5717505fd9e99bwng.JPG

I have never seen this before...ever (this is probably the third time I have written this about N Brown's reporting). A company issuing awful guidance but reporting on an obscure measure as if everything is fine. This is clearly very deliberate as Spindler repeats the number in her comments.

First of all, management don't define the number. Is it growth in H1 against H2 or H2 YoY? In either case, the number is pretty meaningless because what management don't say is that some marketing costs were moved from H2 to H1 (they reported this at the last interims). In other words, especially against the prior year, H2 profit is artificially high due to changes in the timing of payments.

This is, of course, precisely why no-one reports this kind of number: because it is so easy to manipulate! What is extraordinary here though is that management has a track record of dodgy reporting and was caught doing it less than a year ago...but…

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