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Is Bonmarche Holdings plc a buy following today’s 25% fall?

Shares in 50-plus value clothing retailer Bonmarche (LSE: BON) have fallen by as much as 25% today after it released a profit warning. Today’s update provides clues as to the company’s future outlook and whether investors should buy sector peers ASOS (LSE: ASC) and Boohoo (LSE: BOO) instead of Bonmarche.

Bonmarche has experienced an extremely poor sales performance in September. This is largely because of the unseasonably hot weather we’ve seen that has caused shoppers to delay their purchases of the new autumn range. This follows a difficult period in July and August and means that like-for-like (LFL) sales for the first half of the year will be down around 8%.

Looking ahead, Bonmarche has a very uncertain future. The warm weather in September means that the company has failed to gain a representative measure of the strength of its autumn range and it also believes that the clothing market has become more challenging. Therefore, it has lowered profit guidance for the full year. It now expects pre-tax profit to be between £5m and £7m for the full year.

In response to the disappointing performance, Bonmarche expects to focus on improving the clarity of its customer proposition and on making operational improvements across the business. However, it will not make a major strategic repositioning at this stage.

Clearly, investor sentiment has been hit hard by today’s news. It would be unsurprising for Bonmarche’s share price to fall further after today since investors may take time to digest the news and the outlook for the clothing sector may fail to improve.

Go international?

As such, investing elsewhere could be a good idea – especially in clothing retailers with a broader geographical reach than Bonmarche. For example, ASOS and Boohoo are more internationally-focused companies that offer upbeat growth prospects.

In ASOS’s case, its bottom line is due to rise by 31% in the current year and by a further 27% next year. Similarly, Boohoo’s bottom line is forecast to increase by 40% this year and 21% next year. However, Boohoo offers superior value for money compared to ASOS, which makes it a more enticing buy at the present time.

For example, Boohoo trades on a price-to-earnings growth (PEG) ratio of 1.4, while ASOS’s PEG ratio is 2.5. This indicates that ASOS’s future growth prospects are priced in and its share price gains could be somewhat limited following its 38% rise since the start of the year. Meanwhile, Boohoo’s valuation shows that despite rising by 155% year-to-date, there’s much further to go in terms of profit for its investors.

Clearly, Bonmarche’s outlook is now highly uncertain. With Boohoo offering a more diverse revenue stream as well as excellent value for money, it’s a much better buy for the long term. Its shares may be volatile, but in the coming years it could deliver superb capital gains.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.