N Brown issues 'slight' profit warning after tactical investing in price and product

11th Mar 2015 07:50

N Brown has warned of a lower-than-expected product gross margin percentage for the full year, the retailer's second profit warning in six months.The FTSE 250-listed company cited substantial price investments in the fourth quarter as the reason for this decline.Fourth quarter revenue was also impacted by the company's transition from financial services to product sales, so came in flat year-on-year, despite fourth-quarter sales growth improving to 3.6%, including 11% volume growth.Chief executive Angela Spindler was encouraged by the momentum seen during the fourth quarter in terms of trading and strategic progress and said the company had taken "the right decisions now" and sacrificed short-term profit in order to build a "better business".Continued product improvements was accompanied by further investments in cutting prices, which proved successful in terms of product volumes returning to double-digit positive growth for the first time in many years."We have also accelerated our strategic transformation programme and commenced a major extension of our warehouse to support our future growth. The transformation we are driving is fundamental and necessary for future long-term sustainable growth," she said."Whilst we are disappointed by the slower than anticipated progress from a profit perspective, this is because we are taking the right decisions now - in some areas earlier than anticipated by our previous profit guidance - in order to build a better business for an online world."House broker Shore Capital explained in their words that the profit shortfall reflected 'tactical' product gross margin reduction to drive stock clearance activity, which has left the group with a clean year stock position, while further product gross margin was invested in more 'strategic' initiatives, the success of which will see a follow-through into future years at the expense of further gross margin.