Tuesday, 19 May 2020

N Brown sales fall but start to recover, has enough cash to see it through




Simply Be, JD Williams, and Jacamo owner N Brown’s Tuesday trading and finance update told us that its trading levels have partly recovered from those seen in early March. But it continues to be affected by the coronavirus pandemic.

The company also said that new financing arrangements have been secured with its “long-standing supportive lenders”. These give it “significantly increased and amended facilities providing sufficient liquidity, working capital headroom and covenant flexibility to be able to manage effectively in a challenging trading environment”.

That was all relatively good news in the circumstances, considering the challenges that exist in the industry at present and the difficulties the company itself had been facing even before the crisis hit.

But we need to see it all in context and it's clear that heavy pressures remain. N Brown said “trading has improved from the sudden and significant decline experienced in March," but it has still seen "product sales down 25% in the last six weeks”. The board regards this performance as “creditable in the circumstances and is hugely grateful for the commitment and flexibility shown by colleagues throughout the business”.

It’s interesting too that in the last six weeks, it has seen “significant growth” in its Home & Gift categories, which are up 74%, but continued weakness in apparel sales, which are down 48%. Within apparel, offline sales understandably declined significantly more than digital sales. Home & Gift sales were supported by the launch on April 1 of its standalone home brand, Home Essentials.

Its financial services business “continues to provide consistent streams of revenue and cash inflows”. Through “focused operational activity and the migration of more credit customers to automated payment methods”, financial services cash collections have “performed well and are broadly in line with the prior year”. But as it’s offering customers in financial difficulty the option to defer payments for three months, it expects cash collections to trend lower over the coming months. 

Like so many other companies, it has been conserving cash and has continued to operate its distribution centers but at lower levels of capacity than normal. It has also seen an 80% reduction in marketing expenditure; a significant reduction in capital expenditure; the furloughing of 30% of staff across the business; recruitment and salary freezes; voluntary pay reductions for the board and senior managers; and deferment of certain tax payments.

Its fresh financing agreement with its lenders include a new up-to-£50 million three-year Term Loan facility under the government's Coronavirus Large Business Interruption Loan Scheme. Certain covenants have also been amended to be more flexible.

And what exactly is the company expecting for the rest of the year? Well, it has modeled various scenarios. These include a “severe but plausible” scenario assuming product sales down 50% year-on-year in April, May, and June; down 45% in July and August; and 25% to 30% down for the rest of its fiscal 2021 year. It also assumes cash collections 15% to 20% lower than it’s currently seeing, throughout the remainder of the financial year.

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