Retailers In Trouble - Bonmarché Holdings (BONB) and Ted Baker (TED)

  • Jun 27, 2019 BST
  • Team Kalkine
Retailers In Trouble - Bonmarché Holdings (BONB) and Ted Baker (TED)

According to the British Retail Consortium, retail conditions are the toughest as they have been for a decade, forcing many retailers to shut stores, as many companies are under mounting pressure from declining consumer confidence, a shift to online shopping and rising wage costs and business rates. This all comes amid uncertainty around Brexit, which has further exacerbated the situation, and has partly resulted in a 2.7 per cent decline in sales, the weakest performance since the British Retail Consortium began its monthly survey in 1995. Helped by rising wages, consumer spending has been the mainstay of the economy in recent months, but this has not translated into higher sales at brick and mortar stores, resulting in increasing pressure on retailers.

Bonmarché Accepts Open Offer by Philip Day

Bonmarché Holdings PLC (BONB) is a Wakefield, United Kingdom-headquartered multi-channel online retailer of womenswear and accessories. The company offers its products through its 300 plus stores across the United Kingdom, Website and World TV shopping channel, and focuses on selling affordable, stylish, premium quality clothing and accessories in a wide range of sizes to mature women. Helen Connolly is the Chief Executive Officer (CEO) of the group.

The company on 26 June 2019 announced its trading update for the first quarter of the new financial year. It reported that due to unfavourable seasonal weather, particularly in June, and continued weakness in the underlying clothing market, trading during the quarter was weak. To offset the dip experienced during the first quarter, the company expected that better weather would generate a sales peak at some stage during the selling season. However, the patterns of previous years were not followed by the current clothing market.

The company said that it is still possible that it would achieve its forecasted profit before tax as it is still early in the financial year. However, risks are more heavily weighted towards the downside, and there is a significant degree of uncertainty attached to this. The group also said that if its bank continues to support it by way of its GBP 5 million overdraft and other facilities, it would have adequate liquidity, as it has curtailed all unnecessary capital expenditure and implemented cost reduction programme, which has lowered the annual cost base by approximately GBP 6 million.

In April, Spectre Holdings Limited, a Dubai-based entity wholly owned by Mr Philip Day, acquired 52.4 per cent interest in the ordinary shares of the group at a price of 11.445 pence from the private equity backer Sun Capital. In accordance with the stock exchange rules, this meant he had to announce a mandatory cash offer to acquire the entire share capital of everyone under the same terms. However, on 12 April, the company advised the shareholders that they should not accept the offer as it will materially undervalue the company and its future prospects. Further, it announced that it had been planning a number of cost reduction actions across the group and would engage with Philip Day to discuss the future plans for the business. They expected improvement in the operational and financial performance of the company due to the cost reduction programme.

However, on 26 June 2019, along with its first quarter trading update, the company recommended its shareholders to accept the open offer, as it reversed its opposition to the GBP 5.7 million takeover offer from UK billionaire Philip Day. The company noted that the certainty represented by the offer potentially is more attractive in the short term, after the trading and financial position of the business during the first quarter of the financial reflected the increase in uncertainty that has developed lately. The troubled group described the terms of the offer as fair and reasonable but remained steadfast in its stand that the offer does not adequately reflect the potential longer term value of the business. It also added that the medium and long term prospects for the group business are good once the company weathers the near term issues.

Philip Day, who owns more than a dozen retail brands, including Edinburgh Woollen Mill, as part of the rescue plan, wants to cut the size of its head office and close unprofitable stores, which would lead to significant job losses. He also wants to renegotiate supplier terms, reduce clothing range and review staffing at its distribution centre.

Share Price Commentary

 Daily Chart as at June-27-19, before the market closed (Source: Thomson Reuters)

On 27 June 2019, at the time of writing (before the market closed, at 3:35 pm GMT), BONB shares were trading at GBX 11.50, up by 0.87 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 123.50/GBX 11.00. Stock's average traded volume for 5 days was 55,499.00; 30 days - 44,352.47 and 90 days – 201,842.67. The company's stock beta was 0.36, reflecting less volatility as compared to the benchmark index. The outstanding market capitalisation was around GBP 5.70 million, with a dividend yield of 67.98 per cent.

Analyst Downgrades Ratings of Ted Baker

Ted Baker PLC (TED) is a London, United Kingdom-based global lifestyle company which is known for its original fashion offering with high-quality design detailing and unique use of pattern and colour. The company offers menswear, womenswear and accessories under its brand and boasts of an unconventional approach to fashion. The group distributes through three main channels, namely retail, which includes e-commerce, wholesale and licencing, and operates across Europe, North America, the Middle East, Africa, Asia and Australasia. Lindsay Dennis Page is the chief executive officer of the group.

The rating of the company was recently downgraded from outperform to sector perform because of a lack of catalysts of growth. Its target price was also slashed to 900p from 1,900p, as there was a risk that the dividend could be lowered in 2020. Due to a disconnect between price and brand and difficult premium apparel market, the growth prospects of the apparel group have largely diminished. The market raised questions around its apparel pricing structure in the longer term as the company has marked down more items than its peers. Though that partly reflected higher fashion content, it also meant that the full price offer is in line with the expectations of the customers.

The estimates of the company, whose shares are down 47 per cent in the year to date, for the 2020 fiscal year were also cut. The market now predicts that revenue for the financial year 2020 would be lower by 2 per cent than previously forecasted, gross profit by 6 per cent and pre-tax profit by 30 per cent. Against a payout ratio of 64 per cent in FY 2019, the management is expected to announce a dividend towards a payout within the historical 50-60 per cent, which would mean a lower dividend per share. Most dividend scenarios predict a slight increase in net debt, despite a positive free cash flow forecast for the fiscal year 2020.

In the latest trading update for the first quarter of the financial year 2020, the company reported that due to unseasonable weather experienced across North America in the early part of the period and unpredictable and challenging trading conditions, revenue increased by just 3.8 per cent (1.9 per cent in constant currency) for the 19 week period from 27 January 2019 to 8 June 2019.  The company also experienced challenges with its Spring/Summer collections and the highly promotional retail environment across its global markets took a toll on the revenue growth and also led to lower gross margins as compared to last year. While average retail square footage increased by 5.3 per cent to 443,036 square ft, total retail sales, including e-commerce, decreased by 0.3 per cent for the period. Wholesale sales for the period rose by 14.2 per cent (11.4 per cent in constant currency), while e-commerce sales increased by 2.4 per cent (1.2 per cent in constant currency).

Considering the challenging start to the financial year, management is actively focused on product initiatives and cost control, including driving further efficiencies through its sourcing and supply chain, as well as concentrating on net working capital initiatives.

Share Price Commentary

Daily Chart as at June-27-19, before the market closed (Source: Thomson Reuters)

On 27 June 2019, at the time of writing (before the market closed, at 3:40 pm GMT), TED shares were trading at GBX 802.5, down by 0.55 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 2,418.00/GBX 750.00. Stock's average traded volume for 5 days was 276,412.80; 30 days - 276,412.80 and 90 days – 88,358.17. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 7.7x compared to the industry median of 10.1x. The company's stock beta was 0.78, reflecting less volatility as compared to the benchmark index. The outstanding market capitalisation was around GBP 359.90 million, with a dividend yield of 7.26 per cent.

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