Shares in mail order and online womenswear retailer N Brown Group (LSE: BWNG) fell by 14% this morning after the final results showed a 7.8% fall in pre-tax profit to £72.2m.
However, the fall was the result of exceptional restructuring costs and N Brown's adjusted earnings -- a favoured measure of City analysts -- were in line with forecasts at 24p per share. In my view there are a number of other factors weighing on Brown's share price and creating an uncertain outlook for shareholders.
The first issue is that the group is still midway through a major IT, finance and marketing shift from mail order to online. Prices are expected to come under pressure. The group -- which focuses on the plus size and over-50s niches -- said today that gross profit margins are expected to fall by between 0.5% and 1.5% in 2016/17, quite a big drop for a retailer.
The outlook for sales is also uncertain. N Brown said that so far this year, sales have fallen compared on the year. The group expects new marketing to drive sales growth later in the year, but retailers seem to be facing a tough environment at the moment.
N Brown shares now look fairly cheap. The results confirmed a total dividend of 14.2p, giving a trailing yield of 5.3%. The shares now trade on a 2016/17 forecast P/E of about 11.
However, N Brown's dividend hasn't been covered by free cash flow for at least two years. Last year, the firm's capital expenditure programme meant that both the dividend and a portion of the firm's own interest payments were paid using fresh borrowings.
The firm's guidance suggests that spending will remain high this year. In my view, the dividend could be cut if sales don't start rising soon.
A much safer buy
Today's trading statement from Moneysupermarket.com Group (LSE: MONY) didn't cause any drama when markets opened. Shares in the price comparison firm are almost unchanged as I write.
Moneysupermarket.com reported year-on-year revenue growth of 9%, or 12% if you focus on the firm's main website, MoneySuperMarket.com. There were only two flat spots, insurance sales and the TravelSupermarket.com business, where sales fell.
Work is ongoing to turnaround these divisions but in the meantime, full-year forecasts look safe. Current forecasts suggest that earnings per share will rise by 25% to 15.4p this year, giving a 2016 forecast P/E of 20.9. There's also a forecast yield of 3%.
Given the group's high profit margins and lack of debt, this seems a reasonably attractive valuation to me.
This silver play could still be profitable
South American silver miner Hochschild Mining (LSE: HOC) said today that the firm is on course to deliver an all-in sustaining cost of mining of $12-$12.50 per silver ounce. This compares very favourably with the current silver price, which is about $16.90 per ounce.
Hochschild shares have risen by 200% so far this year. A fair amount of progress is now reflected in the price. However, if silver continues to rise, then I believe Hochschild shares have the potential to deliver further gains. I'd probably hold onto Hochschild, for now.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.