Hard-pressed women’s value fashion retailer Bonmarche (BON) holds annual profit guidance, which is reassuring in the wake of September’s profit warning, and expects to maintain the full year dividend, yet the unloved shares are out in the cold again, weakening 4.8% to 77.5p on half year results.
The negative catalyst appears to be the outlook statement, in which Bonmarche concedes store like-for-like sales remain weak and traditional autumn/winter ranges have had ‘a slow start to the season’, meaning Bonmarche must trade robustly over Christmas in order to achieve market forecasts.
REMAINING CAUTIOUS
Here’s the outlook statement from the Wakefield-headquartered clothing purveyor in full:
‘Whilst online sales have continued to show strong year on year growth, as reported, store like-for-like sales have remained weak, and traditional autumn/winter categories have had a slow start to the season.
‘Providing that sales during the key Black Friday through to Christmas trading period meet expectations, the board maintains the guidance published in September, being that the underlying profit before tax (PBT) for the group for full year 2019 will be approximately £5.5m.’
Investors are evidently concerned that a subdued festive showing could trigger further downwards earnings revisions; we will know more when Bonmarche delivers its post-Christmas update on 25 Jan.
Bonmarche coughed up a profit warning at the end of September on the back of weak second quarter store sales and management clearly remains cautious, rightly so given the chill winds ripping through the UK high street.
ONLINE LEADS THE WAY
Results for the half ended 29 September reveal flat year-on-year revenue of £97.9m (2018: £97.8m) and a decline in underlying pre-tax profit to £3.3m (2018: £4.2m). Combined store like-for-like and online sales softened by 1% during the half.
Yet within the mix, store-only like-for-like sales were down 4%, worsening significantly in the second quarter as prolonged warm weather led to summer line stock shortages and also sapped demand for autumn/winter lines, while online sales shot up 28.9%.
With challenging high street conditions affecting the bricks and mortar stores, Bonmarche has adapted its strategy with the aim of accelerating digital sales. Bonmarche has scaled back plans to open new stores and believes it still has a relatively low online sales mix versus multi-channel clothing rivals with more mature online businesses.
CEO Helen Connolly insists that ‘despite the challenging market, the health and fundamentals of the business remain strong and the board remains confident in the strategy and in Bonmarche’s long-term prospects.
Accordingly, the board has declared an interim dividend of 2.5p per ordinary share, in line with last year’s interim dividend. The board’s intention at this time is that the total dividend in respect of full year 2019 will be maintained at 7.75 pence per share, in line with full year 2018.’
Connolly adds: ‘Whilst store trading has been impacted by the general weaker consumer sentiment and footfall seen across the market, we have continued to improve our proposition, particularly our digital capabilities and with a broader, modernised product offer, which is reflected in our strong online performance.’
Kate Heseltine, analyst at Edison Investment Research, comments:
‘It seems that even at the value end of the market the impact of weaker high street demand is taking its toll. Bonmarche, the value fashion retailer, has reported a store like-for-like sales decline of -4.0% for the six months to 29 September 2018.’
Heseltine adds: ‘Encouragingly, whilst online currently represents just 12% of group sales the multi-channel proposition is a priority. In the first half, the company only opened one new store and closed five stores.
'Of the 24 stores with rent reviews or renewals completed in the period it was able to negotiate an average rent reduction of 15% and the average lease term now stands at 3.6 years thus allowing some flexibility to exit underperforming stores.'
