Jan 20, 2017
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Margin commitment dents Bonmarché at Christmas but at least the weather plays ball

Jan 20, 2017

It was good news and bad on Friday morning as UK value fashion retail giant Bonmarché Holdings unveiled sales figures for the five, 13 and 39 weeks to Christmas Eve. But whatever spin you want to put on the figures, it looks like the firm still has lots of work to do.

Bonmarché is improving margins but still has lots to do to get back to full health

First the good news. In the 13-week period sales were up 3.3% year-on-year and comparable store sales edged upwards by 0.8%. Now while that may not have seemed like great news compared to strong results from UK retail peers such as N Brown, Reiss or Ted Baker, it was good compared to Bonmarché’s own performance earlier in the year.

But it also came with some downsides. Online sales in the quarter fell 3.8%, a shock given that this is the key time for online trading and includes the crucial Black Friday period.

At least the performance was better than the 39 weeks to December 24, when sales fell by 1.3% and store comp sales dropped an even-worse 5.3%. Interestingly, online sales were down ‘only’ 2.1% in that period.

But while the Q3 turnover definitely marked an upturn as far as physical store sales were concerned, it looks like it was all about October and early November as the main Christmas trading period itself saw it tipping back into negative territory.

The company said that in the five weeks to December 24, which includes Black Friday, total sales fell 1.5%, physical store comps dropped 3.4%, and online plunged a dramatic 14.3%.

What went wrong at the 327-store chain? It looks like fewer promotions and a commitment to maintaining margins was a big part of it, which may be a big negative in this financial year, but should feed through into higher profits over the long term.

CEO Helen Connolly said: "Given the backdrop of the current trading environment, our third quarter store sales were satisfactory, particularly in light of the business still being in the early stages of its turnaround. The online performance was poor, and this continues to be a key area of focus.”

She said customers have responded well to the “improved, more modern ranges in our core autumn/winter product categories of coats and knitwear” and that “this was helped by more seasonally appropriate weather during the quarter, which strengthened demand and to some degree counterbalanced the weakness we are experiencing in the apparel market.”

The product gross margin for the quarter was 2.2% higher year-in-year, due to a lower level of promotional activity than previously. In particular, and for the first time in several years, the winter sale began in earnest on Boxing Day, December 26, rather than before Christmas.

But Connolly added that there remains “a degree of uncertainty as to trading conditions as we enter our final quarter. Nevertheless, at the end of the third quarter, the board's view of the likely outcome for the full year remains in line with previous expectations.”

What that means in practice is that pre-tax profit should be around £5m to £7m but with the company clearly intent on boosting margins, it must be hoping that profits in the next financial year will be better.

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