Clothing retailer Bonmarche (LSE: BON) ignited market appetite on Monday with its latest trading statement. The stock was last dealing 5% higher from last week’s close.
At first glance, Bonmarche’s numbers may not be considered anything to get excited about. The firm saw revenues slip 4% during the 26 weeks to September 24th, with like-for-like demand slumping 8.6%.
This reduced till performance saw pre-tax profits slump to £2m, down 53% year-on-year.
Bonmarche laid the blame on a variety of factors, from the collapse of BHS — which released acres of discounted, residual stock to clothes shoppers — through to unseasonable weather patterns stretching from summer into the autumn.
But in better news, the huge potential of Bonmarche’s transformation strategy was underlined by today’s release.
Bonmarche’s margin-improvement strategy continues to deliver the goods, and product gross margins improved by 30 basis points despite higher discounting during April-September.
The company is also taking steps to improve its product offering and improve brand awareness, exemplified by its national television and radio advertising campaign rolled out during the autumn.
And Bonmarche is also enjoying improving traffic at its website. The company bounced from a 2.7% decline in like-for-like sales during quarter one to print a 2.3% rise in the following three months. And improvements to its web proposition, like the more customer-friendly “Demandware” online platform which was launched in late September, looks set to drive internet sales steadily higher.
Look before you leap
Today’s numbers come as more good news for Britain’s retailers following the decent sales data of last week.
The Office of National Statistics reported that retail transactions surged year-on-year 7.4% in October, with bad weather prompting shoppers to splash the cash. This is the fastest rate of growth since 2002.
But investors need to exercise some restraint before ploughing straight into the segment, in my opinion. Whilst last month’s numbers were encouraging, the country’s retailers are still having to undertake massive price slashing to keep sales ticking higher.
And steadily rising inflation means that the country’s clothes sellers are likely to keep on reducing prices to stop their checkouts falling silent.
Sector giant Next underlined this murky outlook this week when it advised that sales of full-price items are down 1.5% in the year to date. The company also cut the mid-point of its sales guidance for the current fiscal year.
Marks & Spencer also underlined the flaky state of the sector this month, the retailer advising that like-for-like sales of its clothes and homeware ranges fell 5.9% during April-September.
But I believe the outlook for Bonmarche is far rosier than those of its FTSE 100 rivals.
Whilst Bonmarche is not immune to the same pressures as Next and M&S, the company’s focus towards womenswear for the 50+ demographic gives it a niche upon which it can build. Besides, Bonmarche’s bias towards the cheaper end of the market should allow it to traverse worsening economic conditions in 2017 and beyond.
I reckon a forward P/E ratio bang on the bargain watermark of 10 times makes the retailer a very attractive stock selection.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.