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(Reuters) - British plus-size fashion retailer N Brown Group expects to incur an exceptional charge of up to 40 million pounds for potential customer compensation related to insurance sold between 2006 and 2014.
N Brown, which has a financial services arm that provides customers credit to pay for purchases, said it identified flaws in certain general insurance products that had been provided by a third-party underwriter.
"The vast majority of these products were sold to the group's customers in the period leading up to and including 2011. Sales of the relevant products ceased in early 2014," N Brown said in a statement.
N Brown was the biggest faller on the FTSE mid-cap index in early trade, its shares dropping 8.8 percent to 277.5 pence.
Known for its SimplyBe, Jacamo and JD Williams brands, N Brown has shrugged off weakness in the UK clothing sector thanks largely to its online sales growth, though its financial services arm has dragged down overall results.
In the year to March 4 the company incurred an exceptional cost of 25.2 million pounds, predominantly related to its financial services business.
A company spokesman said the products behind the latest exceptional charge were general insurance policies to cover goods being purchased.
N Brown said it expects to incur a charge in this year's income statement of 35 million pounds to 40 million pounds.
The company added that there may be mitigating actions to reduce the overall net cost and that the matter will not affect underlying operations, the risk profile of its customers or debtor balances.
N Brown, which in June reported a 10 percent rise in first-quarter product revenue, said trading performance has been "in line" since the last update.
($1 = 0.7741 pounds)
Reporting by Rahul B in Bengaluru; Editing by David Goodman