Selling clothes is a tricky business to get right. Most companies operating in the highly competitive world of apparel and footwear have hit bumps in the road, whether they are a high street retailer, a mould-breaking fast fashion challenger or a company catering for “all shapes and sizes”.
All are at the mercy of consumer confidence, competition from privately owned retailers, and the complex task of keeping customers loyal by satisfying their various requirements.
Any of these issues and others, such as bad weather, can lead companies to fall into the dreaded inventory trap, leaving them with warehouses stuffed full of last year’s stock. Companies have little option but to sell off those unwanted items at a discount. Bootmaker Dr Martens has had a taste of it in the US, where it has endured difficult times. Low-margin Asos, once a market high-flyer, has learnt a harsh inventory lesson. It has now changed its ordering strategy, having suffered a huge backlog of unsold stock triggered by over-ordering, which had to be cleared at knockdown prices.
Notorious for rarely putting a foot wrong, Next tends to excel at keeping surplus stock to very low levels. But few retailers are immune to a difficult macro environment such as the cost of living crisis putting a strain on customers’ discretionary spending. Sales volumes at online retailer N Brown have disappointed in the past couple of years as customers cut back on website visits and orders, forcing it to work through its own stock clearance programme.
BUY: Bellway (BWY)
Like its peers, completions and revenues fell at Bellway this year, writes Natasha Voase.
This year is proving to be a lost year for the majority of housebuilders and the focus has now shifted to 2025. For Bellway, sluggish conditions of times past were evident in the 30 per cent reduction in completions to 7,654 homes, while future hopes were demonstrated by the 13.8 per cent rise in the private reservation rate.
“Going forward, [which is] perhaps more important, [we’re] in a really good position,” said Keith Adey, group finance director. “We’ve got a much stronger order book for 2025.”
There has been a slight reduction in the size of the land bank from 95,292 to 98,164 plots, which could constrain the housebuilder’s efforts to take advantage of the Labour government’s planning reforms. However, the team plans to start buying again. “The past two years or so . . . have been less active in the land market, but that follows two very strong years of investment,” said Adey.
This focus on growth is also evident in the opening of new sales outlets. While some rivals have reduced numbers, Bellway increased its number of sales outlets by 2.9 per cent and expects to open around 50 new outlets next year to maintain the average number at around 245. Since overall completions are the product of outlets and sales rates, this should help to increase Bellway’s completion statistics.
However, there are some constraints on growth. The company has switched from a net cash to a net debt position of £11mn, which might be negligible compared with net assets, but it could signal that the group will become more reliant on debt to grow. “We’re not frightened of debt at Bellway,” said Adey. “We have a very solid, strong balance sheet [and] if we see good quality land opportunities in the year ahead and that means that the debt position increases very modestly, then we are comfortable with that.”
Government diktats relating to cladding exposure continue to cast a shadow over the industry. Several UK housebuilders have been forced to increase related provisions as the full extent of the problem has become apparent over time. Bellway has already set aside £656mn since 2017 — and many of its buildings are still awaiting third-party assessments. The group has completed its own assessments at “just about every building that we built”, said Adey. However, the third-party assessments still need to be completed.
Bellway currently trades at around 19 times forecast earnings, which is roughly in line with historical averages. It is well placed to take advantage of Labour’s planning reforms, although investors should maintain a beady eye on its cladding provisions. We switch our recommendation cautiously.
HOLD: Sanderson Design (SDG)
The group has been faced by a fall in discretionary budgets, write IC reporters.
The share price of Sanderson Design slumped alarmingly after the interior furnishings group revealed in its interim statement that “trading conditions at the start of the second half have been more challenging than expected in almost all territories, particularly in the UK and Northern Europe”. That translates to a 10 per cent decline in total brand product sales for the first eight months of the current financial year.
Sanderson’s product offering is dependent on discretionary spending patterns in the economy. So, the cumulative effect of the inflationary surge has weighed on performance. The UK market took the brunt of tough macroeconomic conditions, with sales falling by 14 per cent to £16.7mn, while repeat UK sales orders slowed in the subdued consumer environment.
By contrast, Sanderson continued to take advantage of opportunities in the North America market, with sales up by 4 per cent to £11.1mn. Increasing transactions in US licensing agreements had a positive impact, with Sanderson brand sales increasing by 29 per cent. In addition to the uptick in licensing volumes, Sanderson signed a collaborative agreement with the Huntington Museum in California, in which the group will launch wallpapers and fabrics based on unfinished work by William Morris.
FactSet consensus points to EPS of 8.43p a share, rising to 9.4p in January 2026.
A clear distinction has opened up between North America and the rest of Sanderson’s markets, including the UK. Management said that financial performance is “reliant on a projected improvement in trading during the remainder of the financial year”, although beyond a continued fall in interest rates, it’s difficult to highlight any reason why consumer sentiment is likely to improve in the near term.
SELL: N Brown (BWNG)
While they have rallied over the past year, the shares have been very weak over the long term, writes Christopher Akers.
N Brown grew half-year margins despite continued demand weakness, as the Aim-traded online clothing and footwear retailer continued implementing its multiyear “strategic transformation” plan.
Gross margin rose 190 basis points at the owner of the JD Williams, Simply Be and Jacamo brands, as improved retail stock discipline and higher yield and bad debt improvement at the financial services arm bled through. Cost of sales fell £15mn.
Meanwhile, a £5.6mn decline in operating costs helped the adjusted ebitda margin improve from 5.9 per cent to 6.8 per cent on ebitda of £18.8mn.
The revenue decline was driven by a 7.9 per cent contraction in product sales on subdued consumer spending, although the year-on-year decline improved to a negative 2 per cent in third-quarter trading after the period-end.
Over at the financial services unit (the company’s credit proposition) sales fell 4.6 per cent. The arrears rate was 8.9 per cent, compared to 8.4 per cent last year.
While there are signs that headway is being made with the transformation agenda — a new mobile-first JD Williams website was launched and a product information management system rolled out across brands — weaker key performance indicators show that significant demand problems remain. Order numbers were down 8.1 per cent in the half as active customer numbers fell 10.5 per cent, with website visits moving 2.8 per cent in the wrong direction.
The shares are up by about 40 per cent over the past year, helped by a return to profit in the annual results in June and some strategic headway, but have fallen almost 75 per cent on a five-year basis. N Brown trades on eight times EV/Ebitda (enterprise value against cash profits), higher than the five-year average.
