Fashion retailer N Brown Group plc (LON:BWNG) is facing a hit to profits of up to £40mln for potential customer compensation related to insurance products.
The company behind the Jacamo and Simply Be clothing brands has a financial services arm that provides customers credit to pay for purchases, which also includes insurance cover.
In a statement today, N Brown said it had identified flaws in certain general insurance products that were sold to its customers.
A spokeperson for the company told Proactive Investors that the Financial Conduct Authority (FCA) deemed the products failed to represent value for money following an industry-wide review.
Shares fell 5.25% to 288.50p in morning trading.
The insurance was provided to N Brown by a “third party insurance underwriter” and then sold onto its credit customers between 2006 and 2014, it said.
N Brown expects to incur an exceptional cost of between £35mln and £40mln in this year’s results related to potential customer redress.
The company had already set aside £25mln to cover compensation claims for its credit customers after the FCA set a deadline on its payment protection insurance mis-selling saga for August 2019.
Pre-tax profits in the year to 4 March took a hit from the provision for the claims, falling 20% to £57.6mln.
For the current financial year, N Brown said it would look into ways to reduce the overall net cost related to the compensation payments.
It will fund the compensation using existing resources, which will impact cash flows from fiscal year 2019.
“The group confirms that this matter will not impact its underlying operations, nor the risk profile of the group's current and future customer or debtor balances,” N Brown said.
“The group continues to demonstrate strong underlying trading performance in line with its 20 June 2017 trading statement.”
The company reported a 10.2% increase in product sales in the 13 weeks to 3 June, boosted by a 20.5% jump in Simply Be sales and a 12.7% rise in sales of its JD Williams range, which is fronted by Lorraine Kelly.