Bonmarche shares dive 50% as trading worse than Great Recession

A huge dividend yield proved to be a red flag for this fashion chain, which warns it may make a loss this year. Graeme Evans looks at prospects now.

The whopping dividend yield at Bonmarche was hanging by a thread today after sales at the women's fashion chain were rocked by trading conditions "even worse than the 2008/9 recession".

With Bonmarche now braced for a loss in the year to March, it intends to revisit its progressive dividend policy once more is known about Brexit trading conditions and the outlook for the clothing market in 2019/20.

For investors tempted by the 9.6% dividend yield, it's looking like Bonmarche has turned into a value trap after all. It was something our own companies analyst Edmond Jackson discussed recently, referencing Warren Buffett's old adage about "not kissing toads".

• A toad worth kissing for 9.5% dividend yield?

Investec Securities is now forecasting a 60% cut in the full-year dividend to 4.6p - albeit still offering a 5.7% yield - with a lower 3.1p pay-out the following two years.

Cantor Fitzgerald also expects a cut in the full-year dividend, but has maintained its 'buy' recommendation and said it remains confident in the management's ability to reshape the business into a successful multi-channel retailer.

In the summer, Bonmarche surprised many in the City by increasing the dividend pay-out by 8.5% to 7.75p, helped by a better than expected end to the financial year.

However, nothing has been able to prepare the business and the wider retail industry for the impact on consumer behaviour caused by Brexit uncertainty. This resulted in Bonmarche sales during Black Friday week being "extremely poor". They have not recovered since then, despite some extensive discounts.

Bonmarche source: TradingView (*) Past performance is not a guide to future performance

Shares in Superdry also fell sharply yesterday after it said that unseasonal weather conditions had contributed to its poor trading performance in November and December. 

Helen Connolly, who became Bonmarche chief executive in August 2016, said: "The current trading conditions are unprecedented in our experience and are significantly worse even than during the recession of 2008/9.

"I hope that in the fullness of time, our cut to the forecast may prove to have been overdone, but in the current market, this seems the appropriate stance to adopt."

Shares tumbled 50% to 40.2p, their lowest point since joining the stockmarket in November 2013. 

• Superdry crash exceeds 80%

Connolly thinks that underlying results will now be between break-even and a £4 million loss, compared with the forecast at the company's interim results for a profit of £5.5 million

The mid-point of this new forecast range is based on store like-for-like sales falling 12% in Q3 and by 1% in Q4, when comparatives against a year earlier are already weak.

Under Connolly's leadership, Bonmarche has been successful in boosting its online presence and protecting margins through tighter controls on discounting. It still has an estate of more than 300 stores.

Connolly said:

"I believe that Bonmarche is well prepared to weather the storm, and that we can look forward to some recovery in FY20. Accordingly, the board remains confident in the strategy, and in the company's long-term prospects."

The company's cash reserves are also adequate to meet liquidity requirements, even at the lowest point of the forecast results range.

*Horizontal lines on charts represent levels of previous technical support and resistance.