2014 has been a dismal year for investors in N Brown (LSE: BWNG) and ASOS (LSE: ASC), with the share prices of the two online fashion retail companies falling by 43% and 66% respectively.
However, it seems as though things are getting worse, since N Brown released a profit warning today which stated that mild weather is likely to cause profits to be down on last year’s levels. As a result, shares in the company are down 13% on the day at the time of writing.
Despite this, personally I’d still rather buy N Brown than ASOS. Here’s why.
Profit Warnings
Of course, ASOS also recently released a profit warning. Its problems, though, are slightly different to those of N Brown. Rather than the weather affecting sales, its expansion abroad is taking longer and costing much more than it anticipated. As a result, it expects earnings to be around 19% lower in the current year and to be flat next year.
This is worse than N Brown’s comparable growth forecasts over the same period. It is expected to post a fall in earnings of around 8% in the current year, before growing the bottom line by around 11% next year. Therefore, while the current year is disappointing for N Brown, its problems seem to be due to unseasonable weather that is a hazard of being a retailer, rather than a logistical issue that could prove harder to fix.
Valuation
Although it has better growth prospects over the next two years, N Brown trades on a much more appealing price to earnings (P/E) ratio than ASOS. Of course, that’s not a particularly challenging feat, since ASOS has a staggering P/E of 50.8. N Brown’s P/E of around 12 looks far more appealing – especially when its better growth prospects are taken into account.
Looking Ahead
I think N Brown also offers a greater diversity than ASOS. While ASOS is focused solely on teens and twentysomethings, N Brown has a range of websites that cater to a number of niches, including plus sizes and underwear. As a result, it should be able to command more brand loyalty, since its niches are underserved in comparison to the teen/twentysomething marketplace and, furthermore, customers in N Brown’s niches being arguably less fickle than their ASOS counterparts.
So, even though it has had a profit warning, N Brown seems to have decent growth prospects and a lower valuation, while it could also command more customer loyalty over the long run.
