Unloved women’s fashion retailer Bonmarche (BON) rebounds 6.3% to 84p on relief over the absence of another earnings alert alongside today's post-Christmas trading update.

Total third quarter sales rose by a better-than-expected 3.3%, despite Bonmarche delaying the start of its winter sale, which began in earnest on Boxing Day rather than before Christmas, for the first time in several years.

BATTLING BACK

Bonmarche is battling to regain investors' confidence rocked by a string of profit warnings beginning in December 2015, when the shares were trading north of 300p. Encouragingly, new CEO Helen Connolly says full year expectations are unchanged, pre-exceptional pre-tax profits 'likely to fall within a range between £5m an £7m'.

'Given the backdrop of the current trading environment, our third quarter store sales were satisfactory, particularly in light of the business still being in the early stages of its turnaround,' says Connolly, who has revisited the strategy and sees growth resuming in earnest during the 2018 financial year.

CAUSE FOR CONCERN

However, she concedes 'the online performance was poor, and this continues to be a key area of focus', news that will worry investors at a time when most other retailers are generating significant increases in their web traffic.

'Customers have responded well to the improved, more modern ranges in our core autumn/winter product categories of coats and knitwear. This was helped by more seasonally appropriate weather during the quarter, which strengthened demand and to some degree counterbalanced the weakness we are experiencing in the apparel market.'

Bonmarche, focused on the attractive over 50s female fashion niche, reports 0.8% growth in store like-for-like sales and says margins for the quarter were up year-on-year thanks to 'a less promotional stance' over the period, although the cautious Connolly says 'there remains a degree of uncertainty as to trading conditions as we enter our final quarter'.

THE CANTOR VIEW

Cantor Fitzgerald Europe is sticking with its 'hold' recommendation and target price of 90p, commenting: 'This update is better than expected and the stock will recover strongly possibly up to the 100p level because of the valuation attractions of the business. We still need, however, to be convinced that the company has hit upon a credible turnaround strategy and the stock does not become a ‘value trap’.

Helen Connolly, the new CEO, will concentrate on sourcing, improving the quality of the ranges and obtaining the best terms. She will also look at retail disciplines being strengthened, increasing brand awareness and making better use of the Bonus Club loyalty scheme. There is no plan as yet to modernise the increasingly dated store network.'

Bonmarche - JAN 17

Addressing risks going forward, the broker says these include 'the concern that the LFLs (like-for-like sales) continue to decline following management changes without significant restructuring of the business. There will also be an impact from increases in minimum wage rates. Encouragingly, the company is completely hedged against any weakness in sterling relative to the dollar in FY17 and 80% hedged in FY18.'

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJBell logo

Issue Date: 20 Jan 2017