Fashion retailer N Brown Group PLC (LON:BWNG) swung to a loss as it took a £145.76mln charge related to legacy issues and the decision to move all its sales online.
But shares jumped 10.8% to 118.75p in morning trading as the group left its guidance for the 2020 financial year unchanged.
READ: N Brown makes interim CEO Steve Johnson permanent
The company, which owns the Simply Be, JD Williams and Jacamo brands, made a statutory loss before tax of £57.5mln for the year to March 2, compared to a profit before tax of £16.2mln.
Excluding items, adjusted pre-tax profit rose 2.5% to £83.6mln as operating costs edged down 4.5% to £369.7mln.
N Brown closed all 20 of its stores at the end of the financial year as part of a restructuring to become an online-only retailer.
The group said digital sales now account for 80% of product revenue.
Revenue drops, dividend slashed
Total revenue dipped 0.8% to £914.4mln, with product revenue down 5.6% to £615.8mln and financial services revenue up 10.8% to £298.6mln.
Simply Be was the strongest performer with revenue up 4.4%, excluding stores. JD Williams saw revenue drop 2.4% due to a drag from the migration of customers from Fifty Plus, one of the legacy offline brands.
Jacamo product revenue was up 3.9%, excluding stores.
Digital revenue grew by 4.1% while offline revenue dropped 29.9%.
The product gross margin fell 10 basis points (bps) to 52.1%, due to higher promotional activity.
The financial services gross margin slumped 200bps to 5.92% as a result of the adoption of IFRS 9 accounting measures, which changes the way firms can record receivables.
A full year dividend of 7.1p per share was declared, down from 14.23p last year, as part of the company’s decision in October to rebase the dividend to a “more sustainable level” as it seeks to improve earnings.
Overall net debt swelled by 34.9% to £467.9mljn.
2020 guidance unchanged
For the 2020 financial year, the company expects the product and financial services gross margins to be both between flat and down 100bps.
Group operating costs are expected to fall 2.5% to 4.5% while capital expenditure is estimated to reach £35mln to £40mln.
Net debt is forecast to be £440mln to £460mln.
Chief executive Steve Johnson said the group plans to change its strategy by focusing on its core UK market and simplifying its approach to ensure the brand and product proposition “continues to improve and resonate with customers”.
“We will also look to harness data and technology to offer customers more choice and flexibility when shopping with us,” he said.
"All of this aims to return N Brown to sustainable profit growth, through a digital, retail-led, customer-centric strategy and at this stage in the new financial year our overall expectations are unchanged. “
Peel Hunt upgrades to 'buy'
Peel Hunt raised its rating on the shares to 'buy' from 'add' and lifted its target price to 200p from 150p.
The broker said profit was ahead of market expectations on stronger than forecast margins.
It upgraded its fiscal year 2020 estimate for profit by 13% to £84mln due to management pointing to further cost savings.
"N Brown shares remain clearly undervalued, trading on sub 5x upgraded forecasts and raise our target price to 200p and upgrade from 'add' to 'buy'."