Back then the niche clothing retailer advised that total like-for-like sales had sunk 6.9% during the third fiscal quarter. Its market value may have clawed back some of its losses since then but market conditions has become no less challenging.

Indeed, Bonmarche’s April update showed a 7.4% decline in comparable revenues during Q4 as store sales continued to fall. Trading conditions are unlikely to improve any time soon, either, as the economic and political cloud hanging over the Britain seems likely to remain for a very long time to come.

Yield jumps to almost 8%

Those fearful over a prolonged crush on the UK retail sector may want to give Bonmarche the cold shoulder, particularly in the wake of more troubling retail sales data.

Just today, the latest BDO high street sales tracker showed like-for-like retail store sales fell 1.7% in June, the fifth drop in a row and — worryingly for the clothing segment especially as fashion retail sales on a comparable basis dropped 2.3%.

While the BDO noted that non-store (online) like-for-like sales jumped 10.9% last month, this was the smallest increase since December 2015.

Some would argue that Bonmarche’s ultra-low forward P/E ratio of 7.7 times reflects its risky earnings outlook and the possibility of forecast downgrades. While this is true, share pickers must be prepared to accept some more share price pain in the current climate.

On the plus side, a predicted 11% earnings rise in the year to March 2019 means that the predicted 7.6p per share dividend, a figure that yields an eye-popping 6.8%, is covered 1.9 times by anticipated profits.

What’s more, the 8.5p reward forecast for fiscal 2020 is also covered just shy of the accepted safety benchmark of 2 times, thanks to the expected 12% earnings jump. This anticipated dividend also yields a formidable 7.6%.

Bonmarche also has no net debt on the balance sheet and has a robust £4.3m of net cash on hand to help it meet these near-term forecasts.

A big but…

I’m still not tempted to invest in the FTSE 250 business today, however. Unlike many of the country’s niche clothing retailers such as N Brown, the mix of competitive pressures and broader crimping of consumer spending power has caused Bonmarche’s group revenues to slip more recently, declining 2.1% in fiscal 2018 to £186m.

In the long term I still believe that the company’s decision to cater to the ‘mature female’ segment should still deliver decent profits growth, as should efforts to beef up its position in the online marketplace (sales generated through cyberspace leapt 34.5% last year).

But given Bonmarche’s inability to ride out the current storm battering the high street, and the possibility of a prolonged sales slump, I’m more than happy to splash the cash on other income stocks like those described below.

The post Is this 7%+ FTSE 250 dividend yield a beautiful bargain or a value trap? appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

When I last wrote about Debenhams in April, I warned that there could be worse to come. Unfortunately today’s update confirms that I was right to be worried.

Sales continued to fall during the third quarter and were 1.6% lower than during the same period last year. Like-for-like sales fell by 1.7%, which was only a slight improvement on the 2.2% LFL decline seen during H1.

Pre-tax profit for the current year is now expected to be £35m-£40m, compared to market forecasts of £50m. Net debt is now expected to be at the top end of previous guidance, at £320m. That’s too high, in my view, but I don’t think it’s the company’s biggest problem.

This is the problem

In April, Sergio Bucher, Debenhams’ newish chief executive said that the group’s website is its biggest and fastest-growing store, with 150m annual visits and annualised sales of nearly £250m. That’s nearly 10% of total group revenue.

This growth continued during the third quarter, when digital sales rose by 16%. Unfortunately, this success highlights the group’s biggest problem — its bricks and mortar stores.

These large-format department stores have an average remaining lease length of 18 years, according to the firm. In my opinion they are too large and too expensive. I suspect some may be unprofitable. But exiting from such long leases will be very expensive.

The company says it’s trialling new-format stores that are delivering higher sales densities and require less discounting. But refitting stores comes at a cost. The firm is now trying to “reduce rollout costs while capturing the majority of expected benefits”.

Keep selling

In my view, Debenhams could still have further to fall. Another dividend cut seems likely to me. I also believe that some kind of financial restructuring may be needed to enable the group to close some stores.

For equity holders, I believe the risks are too high. I’d rate the shares as a sell.

One retailer I would buy

One retail stock I do own is Bonmarche Holdings (LSE: BON). This small-cap firm specialises in affordable womenswear “in a wide range of sizes” for “mature women”.

Sales at this niche retailer have been under pressure and fell by 2.1% to £186m during the year to 1 April. However, tight control on costs helped to lift the group’s underlying pre-tax profit by 27% to £8m.

One bright area is online sales which rose by 34.5% last year, and now account for 9.5% of all sales. This increase helped to offset a 4.5% fall in like-for-like sales in the firm’s stores.

Cash generation also improved, thanks to a reduction in stock levels. Cash generated from operations rose from £9.5m to £10.6m last year. The group ended the year with a net cash balance of £4.3m, and was able to increase the dividend by 8.5% to 7.75p per share.

I’d keep buying

Bonmarche is still something of a turnaround situation. But chief executive Helen Connolly expects to report “further progress for the business” this year.

With the shares trading on 7.3 times forecast earnings and offering a 7% dividend yield, I rate Bonmarche as a buy.

The post Why this 7% dividend stock should be a better buy than Debenhams appeared first on The Motley Fool UK.

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Roland Head owns shares of Bonmarche. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The FTSE 250 retailer said that sales tanked 5.5% during the 13 weeks to December 30, marking a significant decline in customer demand in recent months (by comparison revenues actually rose 0.9% during the 39 weeks to December 30).

In its stores, like-for-like (LFL) revenues dropped 9.7% during the last 13 weeks, it said, while online sales improved 28.5% in the period. Both of these also represented a decline more recently.

Commenting on the results chief executive Helen Connolly said: “The clothing market became more challenging during this quarter, especially on the high street; consequently our store LFL was disappointing.”

And she added: “There remains uncertainty as to how trading conditions will evolve as we enter our final quarter. We do not anticipate material changes in the underlying market conditions, and in this short-term outlook, the weather represents the most significant uncertainty due to its effect on consumer shopping behaviour.”

Downgrades imminent?

The latest batch of UK retail sales data released today has added doubt to Bonmarche’s ability to bounce back, too. Office for National Statistics numbers showed sales volumes dropped 1.5% during December, the biggest month-on-month drop since June 2016. And conditions are likely to remain tough as inflationary pressures crimp consumer spending power.

Square Mile consensus had been predicting earnings to boom 26% in the 12 months ending March 2018, and an additional 20% was forecast in fiscal 2019. However, in the wake of today’s disastrous update these numbers are set for swingeing downgrades, of course. And thus investors should pay little attention to a dirt-cheap paper valuation, Bonmarche carrying a forward P/E ratio of 7.9 times.

I confess that I was previously confident that the clothes giant would be able to overcome current difficulties for the retail sector thanks to its emphasis on the value end of the market. But with conditions having worsened since then, investors should maybe give Bonmarche a wide berth today, even in spite of its monster dividend yields of 7.6% and 7.8% for this year and next.

Gold giant

Unlike Bonmarche I would have no crushing concerns over the gold digger Polymetal International‘s (LSE: POLY) earnings potential right now.

Bullion values hit a four-month peak around $1,340 per ounce earlier this week as a slew of disappointing economic data from across the Atlantic heaped fresh pressure on the US dollar.

There is plenty of reason to expect demand for the safe-haven asset to continue bubbling higher too, as Brexit-related fears continue, the intrigue surrounding the Trump presidency looks likely to persist, and fears of lumpy economic growth and massive debt in China drag on.

And surging production levels are putting Polymetal in great shape to capitalise on this situation. Total gold equivalent output at the Russian business leapt by more than a quarter during Q3, to 470,000 ounces.

Given these factors, the City is expecting earnings at the FTSE 250 firm to jump 16% and 18% in 2018 and 2019 respectively, and thus keep dividends marching higher too. Consequently the gold  colossus sports massive forward yields of 4.9% and 5.8% respectively.

An ultra-low P/E ratio of 10.6 times confirms Polymetal as a dividend great worth checking out today, in my opinion.

The post One 5% yielder I’d buy today and one I’d avoid appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Disappointing performance

Reporting on Monday was clothing retailer Bonmarché (LSE: BON). The company announced a fall in pre-tax profit of almost 40%, as like-for-like (LFL) sales growth turned negative. Even online sales failed to grow by as much as many of the company’s competitors have been reporting of late, with a rise of just 2.2% versus the prior year. This meant that total sales were only marginally higher, which is clearly disappointing for the company’s future outlook.

Despite this, the results were in line with expectations. It is currently in the midst of a major transformation programme which has the potential to significantly improve its financial performance. It is seeking to reboot its product offering, while also delivering an improved shopping experience for customers. It is attempting to boost customer loyalty through unlocking the potential of its Bonus Club loyalty scheme, while also improving efficiencies through new systems.

Looking ahead, Bonmarché is expected to report a rise in its bottom line of 27% in the next financial year, followed by 21% in the year after. This has the potential to boost investor sentiment in the stock – especially since it trades on a price-to-earnings growth (PEG) ratio of just 0.3. As such, and although the UK economy faces an uncertain future, now could be the right time to buy the stock for the long term.

Positive catalysts

Also offering strong growth potential is agriculture and engineering specialist Carr’s Group (LSE: CARR). It is expected to report a rise in its bottom line of 31% in the next financial year. This would come after a somewhat mixed period for the business, with its bottom line due to fall by 23% in the current financial year.

With Carr’s trading on a PEG ratio of 0.4, it seems to offer excellent value for money. Its margin of safety has been widened to at least some extent by a fall in the company’s share price of 8% in the last year, which has been a disappointing performance at a time when many stocks have been able to deliver strong capital growth.

Its outlook seems bright due in part to its low valuation and high growth prospects, but also because of its impressive income potential. Carr’s currently yields just 2.8%, but is forecast to increase dividends per share by 7% over the next two years. This means its income return should continue to beat inflation over the medium term. And since dividends are covered 2.7 times by profit, further growth in shareholder payouts could be ahead over the long run.

The post 2 growth stocks that could make you rich appeared first on The Motley Fool UK.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Investor appetite for the company took off this week following the release of perky financials, the stock shooting to levels not seen since early January.

While Bonmarche chief executive Helen Connolly advised that “trading conditions post-Christmas continued to be challenging,” traders focused on news that like-for-like sales at its stores have improved in February and March following a negative result in January.

As a result underlining sales at its stores fell just 0.5% during the 14 weeks to April 1, illustrating a huge improvement at the tills more recently. By comparison, underlying sales at its outlets fell 4.3% in the 53 weeks to the start of April.

Meanwhile, Connolly also noted the huge inroads Bonmarche is making online, reflecting the massive potential of its new and more sophisticated ‘Demandware’ platform. Sales made via cyberspace shot 15.2% higher in the period to April 1, compared with the 2.2% advance punched in the full fiscal year.

The price is right

However, I believe the market has still not yet cottoned on to the vast potential of Bonmarche’s transformation package, a point underlined by the retailer’s ultra-low valuations.

In the year ending March 2018 it is expected to record a 40% bottom-line advance. This results in a P/E ratio of just 6.2 times, comfortably below the well-regarded bargain benchmark of 10 times.

And an expected 20% earnings advance in fiscal 2019 drives the multiple to a mere 5.1 times. On top of this, a sub-1 PEG reading of 0.2 through to the close of next year echoes Bomnache’s position as a hot value stock.

And there is also much for dividend chasers to get excited by, with anticipated dividends of 7.2p and 7.5p per share for 2018 and 2019 respectively yielding 9.1% and 9.4%.

Set to soar

I also reckon cut-price flyer Wizz Air Holdings (LSE: WIZZ) is on track for monster earnings growth as the business aggressively expands its footprint across Eastern Europe.

The Hungarian business saw passenger numbers leap 19.2% year-on-year in March, to 1.98m. Wizz Air’s steady spread across the region is helping drive customer numbers, Wizz Air adding 10 new routes spanning the likes of Ukraine, Poland and Romania in March alone. This took the total to more than 500 and the company’s position in the fast-growing low-cost segment is propelling traveller numbers skywards.

So like Bonmarche, I also believe Wizz Air is looking shockingly underbought by the investment community.

While the airline does not pay monster dividends like the clothing giant, expected earnings growth of 2% and 16% in the years to March 2018 and 2019 respectively create P/E ratios of just 10.9 times and 9.4 times.

I reckon this is unbelievably cheap given Wizz Air’s aggressive growth strategy, plans that should provide plenty of long-term upside as economic growth in Eastern Europe takes off.

The post 2 bargain shares you can’t afford to ignore appeared first on The Motley Fool UK.

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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. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One of these stocks is on my personal watch list, because I think there’s a chance that the group’s management may pull off a surprise turnaround.

An uncomfortable position

Sales rose by 14% to £165.9m at sofa retailer SCS Group (LSE: SCS) during the six months to 28 January. But the group’s share price has fallen and is down by 7% so far this year, putting the stock on a miserly forecast P/E of 7.1 for 2016/17.

This gradual decline has also resulted in the group’s forecast dividend yield rising to a staggering 9.5%.

One reason for this is that ScS is heavily cyclical. While consumers may continue to buy food and clothes during a recession, they generally stop buying new sofas. ScS Group’s annual revenue has risen by 52% to £317.3m since 2012 and profits have followed. But there are signs this strong run of growth is coming to an end.

The group’s adjusted earnings are expected to rise by just 2% to 22p per share this year. This forecast has been cut by 0.45p per share over the last three months. Any further reduction would leave ScS at risk of reporting a fall in profits.

In my view, the stock’s current valuation is pricing-in the likelihood that consumer spending could fall, dragging down the group’s profits.

A second concern is that ScS’s balance sheet may not be as strong as it appears. Although the group reported a net cash balance of £36.8m at the end of February, ScS receives payment for sofas sold up to two months before the firm pays its own suppliers. If sales slowed, then I believe the group’s cash balance would fall fast as supplier payments became due.

Although the 9.5% yield is tempting, I’m going to continue to steer clear of ScS.

This could be a buy

Shares of women’s value clothing retailer Bonmarche Holdings (LSE: BON) rose by 3% on Wednesday, after the struggling group issued a cautiously optimistic year-end trading statement.

Adjusted pre-tax profit for the year ending 1 April is now expected to be between £6m and £7m, towards the upper end of the £5m to £7m range quoted in September last year.

Chief executive Helen Connolly appears to have slowed the decline in sales and turned around the group’s disappointing online operation. Online sales rose by 14.8% during the final quarter of the year, compared to a 1.8% increase for the full-year period.

Like-for-like store sales remained negative during the period, falling by 2.4% during the 13 weeks to 25 March. However, this compares well with the results seen during the first half of the year, when like-for-like store sales fell by 8.6%.

There was no word today on whether Bonmarché’s 7.1p per share dividend is likely to be cut this year. I think there’s a reasonable chance of a cut, but I’m also attracted by the apparent turnaround in sales performance. If this continues into the current year, then I believe Bonmarché could be of interest to value investors.

The post One 9% dividend I’d buy, and one I’d avoid appeared first on The Motley Fool UK.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The next Boohoo.Com?

Shares of flash sales retailer MySale Group (LSE: MYSL) have risen by 186% over the last year. Today’s trading update shows revenue rose by 18% to A$126.5m during the final six months of 2016. Earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 100% to A$3m, beating expectations.

Today’s figures put the firm on track to deliver forecast revenue of A$275m this year and to potentially beat full-year net profit forecasts of A$1.76m.

MySale’s main market is Australia, where it operates a flash sales stock clearance business and is starting to sell its own bought-in stock. Customer numbers rose by 19% to 870,000 during the second half of 2016. A greater proportion of full-price stock lifted the group’s gross margin by 2.7% and pushed gross profit up by 17% to $38.4m.

A second attraction is that MySale now appears to be generating cash. The group’s net cash rose from A$27.5m to $A29.1m during the last six months.

Is this the right time to buy?

Investors who picked up MySale shares when they dropped below 50p in 2016 will be pleased with today’s results. But the shares have tripled since then and the stock currently trades on a 2017/18 forecast P/E of 273.

Clearly the business needs to grow into this valuation. But if profit margins and sales continue to rise, I believe the firm’s profits could easily double or triple over the next 12 months.

MySale’s valuation is too rich for me, but I can see the logic in buying a small stake in this stock, with a view to holding for the next one or two years.

A high-yield value play

If you prefer to focus on value and income instead of growth, then womenswear value retailer Bonmarche Holdings (LSE: BON) may be of interest. The group’s shares have fallen by more than 50% over the last year, but rose by 4% this morning, after the firm reported an increase in sales in the run-up to Christmas.

Bonmarche said that like-for-like store sales rose by 0.8% during the three months to 24 December, while online sales fell by 3.8%. Overall sales rose by 3.3%, thanks to a number of new store openings.

Chief executive Helen Connolly admitted that the fall in online sales was “poor” and said this remains “a key area of focus”. I think today’s figures are encouraging, although it may still be too soon to be sure that a turnaround is underway.

The question for investors is whether Bonmarche is value buy, or a value trap. The shares currently trade on a forecast P/E of 6.5 and offer a prospective dividend yield of 8.8%.

An ultra-cheap valuation like this usually indicates that the market is sceptical about a company’s ability to deliver.  

Today’s trading update confirmed previous guidance for adjusted pre-tax profit of £5m-£7m this year. That’s encouraging, but my calculations suggest that this level of pre-tax profit is likely to result in after-tax earnings below consensus forecasts for 12p per share. I think a figure of 8p-10p per share is more likely.

My view is that Bonmarche shares are fairly priced at the moment, but have significant potential as a recovery play.

The post 2 soaring small caps set for significant gains appeared first on The Motley Fool UK.

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

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 24^th, 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.

Better execution

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.

Fashion star

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.

The post Retail wars! Should you buy these high-street hulks following today’s news? appeared first on The Motley Fool UK.

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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.

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.

The post Is Bonmarche Holdings plc a buy following today’s 25% fall? appeared first on The Motley Fool UK.

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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 boohoo.com. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The group still has a large share of the market for budget and mid-priced sportswear. Sports Direct’s track record also demonstrates that whatever his failings, Mr Ashley is a talented retailer.

As such, investors may want to consider investing some of their own cash alongside the man who owns 59% of Sports Direct. Although the shares have fallen by almost 50% over the last year, profit forecasts seem to have stabilised.

Sports Direct currently trades on a 2016 forecast P/E of about 10. In my view, the shares could rise significantly if Sports Direct can return to steady growth. The only downside is that despite generating plenty of cash, Sports Direct doesn’t pay a dividend.

Is this 6% yield worth buying?

Investors looking for a reliable dividend are likely to choose Marks and Spencer Group (LSE: MKS) over Sports Direct.

Shares in M&S have fallen by 33% over the last year, pushing up the stock’s dividend yield to a tempting 5.8%. However, new boss Steve Rowe warned recently that the changes needed to transform the group’s struggling clothing business could put pressure on profits.

The big question for investors is whether the dividend is safe. Marks and Spencer generated £466m of free cash flow last year, after interest and pension deficit payments. This is equivalent to 28.7p per share — considerably more than 18.7p paid in dividends. Dividends covered by free cash flow in this way are usually very safe, but I do have a couple of concerns.

Marks and Spencer’s net debt of £2.14bn is now quite high, at 3.8 times last year’s post-tax profits. I’m also worried that the group’s free cash flow could come under pressure if Mr Rowe cuts prices and makes other changes to the clothing business.

I suspect the dividend will be safe, but I expect a turnaround to take some time. In my view, there’s no rush to buy as these shares may get cheaper.

An ‘under the radar’ bargain?

One clothing retailer that has caught my eye is niche womenswear group Bonmarche Holdings (LSE: BON).

Shares in Bonmarche have fallen by 60% over the last six months, following a profit warning in December that triggered a 20% reduction in earnings forecasts.

Investors will have breathed a sigh of relief this morning, when Bonmarche published full-year results in line with these revised forecasts. Underlying earnings of 18.3p put the shares on a trailing P/E of 6.9, while the total dividend rose by 5% to 7.14p. This gives Bonmarche shares an attractive trailing dividend yield of 5.7%.

The only fly in the ointment was that the group said trading for the current year had “continued to be tough due to poor weather”. Chief executive Beth Butterwick said that hitting full-year expectations would require “trading conditions [to] normalise”.

Bonmarche shares currently trade on a 2017 forecast P/E of just 6.4. This suggests the market isn’t yet convinced that the firm’s earnings will recover this year. If you take a contrarian view, then now could be a good time to buy.

The post Will these bargain retailers surge higher in 2016? Sports Direct International plc, Marks and Spencer Group plc and Bonmarche Holdings plc appeared first on The Motley Fool UK.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Sports Direct International. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.