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Is Bonmarche Holdings PLC A Better Buy Than Diageo plc And Debenhams Plc After Today’s Update?

Shares in women’s value retailer Bonmarche (LSE: BON) have slumped by around 10% today after it released a profit warning. It states that while total sales increased by 5.3% for the year to 26 March, it now expects pre-tax profit for the period to be at the lower end of the guidance provided in December. As such, investor sentiment in the company has taken a hit and further falls in the company’s share price in the short run can’t be ruled out.

The key reason for the disappointing performance post-Christmas has been challenging trading conditions, with colder weather proving unhelpful in kick-starting demand for spring products. Furthermore, Bonmarche doesn’t believe that consumer confidence is buoyant and looking ahead, it remains cautious on its medium-term outlook.

However, with Bonmarche trading on a price-to-earnings (P/E) ratio of around 10, its near-term challenges appear to be adequately priced-in. Certainly, the coming months could prove to be difficult for the business and investor sentiment may remain subdued, but for long-term investors such a low rating plus a yield of 4.5% indicates that now could be a good time to buy a slice of the business.

Growth potential

Of course, there are a number of other excellent buys in the consumer goods space. Notably, Diageo (LSE: DGE) offers superb long-term growth potential, with its exposure to the emerging world likely to provide it with strong demand for its premium products. That’s because growth in middle income earners across the developing world could lead to greater sales for a range of alcoholic beverages, and with Diageo having a number of leading brands in this space it’s well-positioned to benefit from an economic tailwind in the long run.

Furthermore, Diageo is expected to return to positive bottom line growth next year, with its net profit forecast to rise by 9%. This has the potential to boost investor sentiment in the company following a challenging period and with its diversity, size and economic moat factored-in, Diageo appears to be a better buy than Bonmarche at the present time.

Margin focus

Similarly, Debenhams (LSE: DEB) also seems to hold greater appeal than Bonmarche. That’s at least partly because the company is trading on an even lower valuation than its sector peer, with Debenhams having a P/E ratio of just 9.6. This indicates that there’s significant scope for an upward rerating over the medium term and with Debenhams having a new strategy placing greater emphasis on margins than before, it seems to be well-placed to deliver strong profit growth.

Furthermore, Debenhams has a slightly higher yield than Bonmarche, with the former’s yield standing at 4.7%. And with Debenhams also being a more diversified and robust operation than Bonmarche, it could prove to be more resilient if trading conditions do remain challenging in the coming months.

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Peter Stephens owns shares of Debenhams. The Motley Fool UK has recommended Diageo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.