N Brown sets sights on menswear

Tag : menswear

Like Great Universal Stores of old - the original Manchester-basedhome shopping group - N Brown has a commendable knack of meetingits numbers through good times and bad.
Yesterday’s first-half figures from the FTSE 250 company,which caters for mature, plus-sized customers, were no exception.With a stock market value of £640 million, it is now biggerthan Debenhams, HMV and WH Smith and its pretax profits were up 20per cent, with like-for-like sales ahead 12.6 per cent, despitestrong comparative numbers last year. Neither is there any sign ofslowdown in more recent trading: like-for-like sales for the fiveweeks to October 4 were up 11.8 per cent. The only concern is thatsuch gains have come partly at the expense of gross margins, whichfell 0.8 percentage points. It pins that drop on a first-halfmarketing drive aimed at pulling in younger customers - for NBrown, those in the 30-to45 age range. That push produced a 21 percent rise in sales from that category, but at the expense of anincrease in bad debts. However, it says that bad debts fromexisting customers are “showing little deterioration”.That has not stopped N Brown tightening its belt in anticipation oftougher times. Rather than increasing its spending on attractingnew customers - marketing costs are equivalent to about 20 per centof turnover, forecast at £650 million this year - it iskeeping that sum flat on the first half. It is also restrictingcredit terms. To conserve cash - N Brown has £220 million ofdebt, up £18 million on the year - the interim dividend isbeing raised less than earnings, by a modest 4.9 per cent.
N Brown’s advantage is the flexibility of its costs overstore-based rivals. A focus on older, larger customers means thatit has demographics firmly in its favour. Female customersoutnumber males by seven to one and it wants to cross the genderdivide and increase its sales of menswear, a clear opportunity forthe company. The stock market is not immune to those attractions:the shares have outperformed the FTSE all-share index by 47 percent over the past three months - but at 215p, or ten timescurrent-year earnings, they remain a relative safe haven in atroubled sector. Hold on.
Mouchel
Mouchel might draw all its sales from the public sector andregulated utilities but a glance at its shares - down 28 per centin three months - might suggest otherwise. But that slide has lessto do with an anticipated slowdown in work from water companies orlocal authorities than fears that the FTSE 250 consulting engineerhas lost its once-predictable habit of winning new work.
In roads, its traditional area of expertise, Mouchel has notsecured either of the past two large Highways Agency contracts forwhich it pitched. This means that its success in landing the nextsuch contract - covering Yorkshire and North Lincolnshire, due tobe awarded before the end of the year - is being more closelyfollowed than usual. But as yesterday’s 14 per cent surge inthe shares suggested, shareholders are willing to put aside thoseworries for now and focus on the strength of underlying trading.Although yesterday’s full-year results were flattered by thefirst-time contribution of Hedra and HBS, its recent acquisitionsin white-collar government services, they also showed a 14 per centrise in underlying sales - towards the top end of Mouchel’sorganic growth target of 10 per cent to 15 per cent. Further, itsbid pipeline, at £2.2 billion, has been maintained atprevious levels, while strong cash generation helped net debt tocome in at a below-forecast £82 million.
The Highways Agency’s decisions aside, the longer-term worrymust be weakening public expenditure. Here, Mouchel’s focuson the maintenance of existing infrastructure - rather thannew-build projects - should serve it well. So, too, should costpressures on local authorities that should increase the momentumbehind outsourcing to the private sector. At 330p, or ten timescurrent-year earnings, Mouchel sits at a modest, albeit deserved,premium to its peers. Hold.
Carluccio’s
The midst of an economic storm is not the ideal trading backdropfor a chain of upmarket cafés with their own shops, butCarluccio’s is no ordinary restaurant operator, asyesterday’s full-year trading update shows. Despite mountingpressure on consumer spending and poor summer weather, the groupstill trades in line with expectations.
There was also progress on its overseas expansion. It has signed adeal with Landmark Group, a Middle Eastern retail conglomerate, todevelop Carluccio’s in six countries in the region. Its firstoverseas franchise, in Dublin, is trading well and its Irishpartner plans a second store within a year.
The UK rollout continues apace. In the year to September 28, fivesites opened, to make 38. A similar number are to open in thecurrent year. New sites drove a 21 per cent rise in revenue.Carluccio’s does not state like-for-like sales, but these arelikely to have levelled off as customers traded down to cheaperwines and meals - with an average spend of £13 a head atlunchtime, it is towards the pricier end of quoted restaurateurs.
The more immediate worry is the higher food and utility costs thathave caused a cut in current-year profit forecasts. The shares havealready fallen 57 per cent in the past year and, at 12 timesforward earnings, are at their lowest multiple since listing threeyears ago. The quality and growth prospects of theCarluccio’s brand are also attractive, as is a debt-freebalance sheet in a highly geared sector, but rising costs andwaning consumer confidence counsel caution for now. Avoid.