Two Retail Stocks Trending on the London Stock Exchange: Lookers PLC and N Brown Group PLC

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” - Benjamin Graham

The United Kingdom and the European markets are set for a robust weekly gains (before the close on 5^th June 2020), while the travel stocks soared to top in nearly three months. The major catalysts for heading the market towards the north were:

• The optimism around swift economic recovery from the prolonged economic slump kept the sentiments upbeat.
• A massive stimulus package from the European Central Bank (ECB) driven hopes for an upturn in economic activities.
• A progress in development of a vaccine for treating COVID-19 disease.

Besides the positive market sentiments, British retail sales shed 18 per cent in May as the Coronavirus-imposed lockdown kept the shopping streets and stores empty. Hence, in the light of current market conditions, we are going to discuss two LSE listed general retailers today - Lookers PLC (LON:LOOK) and N Brown Group PLC (LON:BWNG). As on 5^th June 2020 (before the market close at 2.30 PM GMT), LOOK gained around 16.17 per cent, while BWNG jumped about 20.66 per cent. For a better understanding of sharp gains in both the stocks today, we will skim through their recent regulatory updates regarding operations and financials, to gauge upon the panorama of prospects.

Lookers PLC (LON:LOOK) - Restructuring the Business for Substantial Annual Savings

Lookers PLC is engaged in retailing of motor cars, vans along with aftersales services. It has a network of more than 165 franchised dealerships, which comprises 31 brands to sell over 218,000 vehicles annually from 31 sites. It operates across the United Kingdom and the Republic of Ireland. The Company is listed on the London Stock Exchange since 21^st June 1973 and currently, a constituent of FTSE All-Share.

(Source: Company Website)

A Glance of Business Model and Strategy

Motor Retail Division: The segment involves the selling of new and used cars along with vans. It sold between 2.26 million to 2.69 million vehicles over the past five years.

Aftersales Service: The segment caters to repair and services of auto parts. It reaches its customers through digital channels and website.

The three main pillars of Looker’s strategy are the following:

• People: Enhancing customer experience by recruiting, nurturing, and retaining the right talent.
• Technology: Increasing availability with an omnichannel network of operations.
• Marketing: Improving the brand proposition among all the stakeholders.

Management Changes in 2020

• 4^th June 2020: The Group will hold its annual general meeting on 29^th June 2020.
• 12^th March 2020: Cameron Wade, the recently appointed Chief Operating Officer (COO) of the Lookers PLC, decided to step down with immediate effect.
• 5^th February 2020: Major management changes were announced with immediate effect:
  • Chief Executive Officer: Mark Raban
  • Chief Operating Officer: Cameron Wade

Trading and Operational Update – Jobs to be Cut after Re-opening

On 4^th June 2020, the Company provided an update after the re-opening of its dealerships on 1^st June 2020. Trading was resumed across the Group, but at a lower than normal capacity levels. The Group said 1,500 jobs could go as part of cost-cutting measures, which will save the UK motor retailer approximately £50 million per year. At the end of May 2020, Lookers had approximately 66 per cent of its workforce on furlough, though this figure will decrease to approximately 55 per cent in June 2020. Some additional highlights are stated below:

• At the end of May, the net debt was £57 million, with a facility of £250 million and property portfolio with an adjusted net book value of £325 million at 31 December 2019.
• The Group said it would incur a one-off cash restructuring cost of approximately £9 million.
• On 18^th May 2020, LOOK started to implement a new contactless vehicle handover and delivery process. Since then, it has fulfilled a total of around 4,000 used and new retail vehicle orders.
• Over the past two weeks, the Group received retail orders for 2,865 vehicles (including both new and used). On a like-for-like basis, it represented around 51 per cent of sales for the corresponding period of the last year.
• The results for 2019 were postpended and are expected to be released by the end of June.

Share Price Performance Analysis

(Source: EODHD/Others, Thomson Reuters) -1-Year Chart as of June 5th, 2020, before the market close

LOOK’s shares were quoting at GBX 31.02 on 5th June 2020 (before the market close at 2:38 PM GMT+1). Stock's 52 weeks High is GBX 88 and Low is GBX 10.54. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 105.15 million.

Outlook

Considering COVID-19, the Group is continuing to take an effective approach to manage cash. Led by weak customer confidence and retail cost inflation, the Company was facing a challenging market condition. Given the continuing uncertainties resulting from the COVID-19 situation, the management continues to believe that it is too early to make any reasonable estimation of the financial impact on the Group during 2020 and beyond. LOOK has projected its revenue and profitability to be impacted in FY20, due to COVID-19. In the long run, the Group shall emerge strongly once the uncertainty fades away.

N Brown Group PLC (LON:BWNG) – Secured a New Lending Arrangement to Revive the Business

N Brown Group PLC is an online retailer which markets menswear, ladieswear, homewares, footwear, and gifts across its brands. Particularly, it focusses on the clothing needs of size 20 plus and age 50 plus. The Company employs a workforce of more than 2,400 people across the United Kingdom. The Company was admitted to the London Stock Exchange on 10^th November 1972 and presently, a constituent of the FTSE All-Share index.

(Source: Company Website)

Significant Recent Updates

• 19^th May 2020: The Group reported that trading had been improved since March, albeit it continues to be impacted by the Coronavirus pandemic. Furthermore, the Company reported a new financing arrangement to withstand the challenging trading environment.
• 29^th January 2020: Sarah Welsh strengthened the management team by holding the position of Retail Chief Executive Officer.

Trading and Financing Update – Improved Performance Despite Elevated Global Volatility

On 19^th May 2020, the Company provided an update on trading and amendments to its debt financing arrangements, with improved trading from the level witnessed in early March, but it continues to be impacted by the COVID-19 pandemic. Some highlights are:

• In the past 6 weeks, the Group witnessed a surge in Home & Gift categories by 74 per cent as compared to the corresponding period the previous year, while the business for apparel sales decreased by 48 per cent.
• The offline sales declined significantly more than that of online sales within the apparel segment.
• The Company’s financial service division continued to perform resiliently with consistent cash stream of inflow and revenue.
• As per the uncertainties, the Group has taken several cash preservatives like a substantial reduction in capital expenditure, 80 per cent reduction in marketing expenses, furloughing 30 per cent colleagues across the business, freezing of recruitment and salary.
• In addition, the Group secured a 3-year term loan facility for GBP 50 million under the Government's CLBILS (Coronavirus Large Business Interruption Loan Scheme).

Share Price Performance Analysis

(Source: EODHD/Others, Thomson Reuters) -1-Year Chart as of June 5th, 2020, before the market close

BWNG’s shares were quoting at GBX 28.20 on 5th June 2020 (before the market close at 2:44 PM GMT+1). Stock's 52 weeks High is GBX 163.90 and Low is GBX 10.02. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 64.76 million.

Outlook

The Company plans to build on its strengths and looks to revitalise its mobile business and give customers a smooth experience. The Group operates in a competitive industry, and excessive competition could impact the profitability of the company. Moreover, the collections of financial services were broadly in line with expectation. The group continues to monitor the impact of COVID-19 and will take decisions to safeguard the interest of shareholders. The Group has taken prompt actions to preserve liquidity throughout the FY21. The Group is making good progress with its ongoing strategic review, which would benefit in the cost reduction and thus, improve the business further. However, the management of BWNG is not able to provide full-year guidance for FY21, given the continually evolving uncertainties.