Bombed-out women's value fashion retailer Bonmarche (BON) rallies 3.1% (5.5p) to 181p on relief its mellow third quarter trading statement contains no new nasty surprises. Having warned on profits (16 Dec) following a difficult December, the retailer reassures with news demand has picked up since Christmas and expresses confidence in achieving annual pre-tax profit within the recently downgraded £10.5 million-to-£12 million range.
Bonmarche de-rated sharply following last month's update, where it guided towards a lower annual profit outturn on weather-driven weaker trading and also the anticipation of higher markdowns after Christmas to shift unsold autumn/winter stock. Investors were also left reeling by the announcement of the departure of CEO Beth Butterwick (pictured below), who's off to join Karen Millen as CEO.
The warning acted as a lead indicator for weak trading from many other clothing retailers, among them iconic high street bellwether Marks & Spencer (MKS) and its big rival Next (NXT). For the quarter ended on Boxing Day, Bonmarche's total sales actually rose 3.4%, though store like-for-like sales declined by 1.3% amid testing high street conditions during unseasonably warm November and December.
Yet the good news is Bonmarche's 0.8% decline in quarterly like-for-like sales including online was better-than-feared, while 'in the short period since Christmas, demand has trended towards more normal levels'. At this stage, there is no update on the search for a successor for Butterwick.
Following today's soothing statement, Cantor Fitzgerald Europe's Freddie George retains his £11 million pre-tax profit forecast for the current year to March, an estimate rising to £13 million for 2017, on the assumption Bonmarche can trade through more normal weather conditions in 2016.
With a 'hold' rating and 230p price target, George reminds clients Bonmarche 'has a relatively strong balance sheet with cash still forecast at circa £10 million at the end of March 2016. It should, we believe, continue to benefit from the greater affluence of the over 50’s and the pension reforms introduced in April 2015. It should also be less impacted by higher interest rates as its customers have relatively low debt levels and some have savings.'
Canaccord Genuity's David Jeary sticks with his 'buy' rating and 250p price target. He comments: 'We continue to believe in the longer-term growth prospects of Bonmarche, and attribute the lowered forecast guidance to the unseasonably warm weather, which was a major contributory factor to lower levels of footfall on the High Street in November and December. The extent to which the Black Friday phenomenon impacts High Street footfall under more "normal" weather can hopefully be tested next year. This said, in the absence of a positive catalyst, such as a return to stronger LFL growth or a strong CEO appointment, the shares are likely to drift in the near-term in our view.'