N Brown Group is a profitable clothing and homeware retailer with five core brands and an ancillary consumer credit division. In recent years it has been working to transform its legacy businesses by moving predominantly online, streamlining its brands, changing its marketing approach and reinvigorating its finances.

The high street was already under serious strain before Covid, and the latest headwinds have massively added to the pressures on retailers - but there have been some successes.

The investment case for N Brown rests on its ability to revive its business and set a course to flourish while others fall by the wayside. It's very much a value stock and there is no denying that turnarounds in challenging and competitive sectors are fraught with risk.

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Profile

N Brown (LON:BWNG) is a Consumer Cyclical / Speciality Retailer and trades on the AIM market (having transferred from the Main Market in December 2020). It currently has a market cap of ~£286.4m and the shares have good liquidity, with an Exchange Market Size of 15k.

It's classified by Stockopedia as a Highly Speculative, Small Cap, Super Stock, with a StockRank of 95. From a quantitative perspective, its strength are in its Quality (89) and Value (97), with weaker Momentum (54). The forecast PE ratio stands at a cheap looking 6.2x. The company has a history of paying dividends but having used the government furlough scheme during the Covid pandemic, it's currently barred from paying one.

Despite its Super Stock classification, N Brown in some ways resembles more of a Contrarian bet in the challenging retail sector, but also a Turnaround situation given its transformation in recent years.

There are undoubtedly economic headwinds in this sector - with multiple fashion retailers collapsing in recent years. However, N Brown caters for a rather different demographic and appears to be pulling off the feat of transforming a collection of legacy businesses and brands into a streamlined, well-defined offering for consumer niches that are perhaps under-served.

A multi-year transition (which recently saw the introduction of a new Home & Gift offering) caused sales to fall last year, which the group did anticipate. Declining sales have continued through Q1 - Q3 of 2021 (not helped by Covid), but the declines are slowing. Indeed, 80% of margin decline this year is expected to be offset by a lower cost base (largely as a…

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