ii view: budget chain B&M’s profits are top of the range

Full-year trading update to 30 March

• Total revenue up 10.1% to £5.5 billion
• Fourth-quarter B&M UK like-for-like sales up 2.9%

Guidance:

• Now expects full-year adjusted profit (EBITDA) of £629 million, at the upper end of its prior £620-£630 million forecast and up from last year’s £573 million

Chief executive Alex Russo said:

"The Group has performed well in the year delivering strong operational execution. We serve our customers through a relentless focus on everyday low prices (EDLP), great product ranges and excellence in operational standards. This delivers profitable, cash generating growth for our shareholders. 

“The business and team are well set up for the year ahead, our pipeline remains on track to open not less than 45 UK B&M stores in each of the next two financial years and our French and Heron businesses continue to demonstrate significant profitable growth potential."

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ii round-up:

Retailer B&M European Value Retail SA (LSE:BME) today flagged its expectation for annual profit to be at the upper end of its previous forecast range, but its core UK B&M business has underperformed. 

Adjusted profits for the year to the end of March was £629 million compared with management’s forecast range of £620-£630 million. However, fourth quarter like-for-like sales growth of 2.9% at UK B&M stores, which account for four-fifths of overall sales, fell short of analyst estimates of 3.7%.

Shares in the FTSE 100 company fell 2% in UK trading having come into this latest news down by close to a tenth year-to-date. That’s similar to supermarket operator Sainsbury (J) (LSE:SBRY) and below a near 2% rise for the FTSE 100 index itself in 2024. 

Net new full-year store openings in the UK of 47 was two more than its earlier year forecast, with trading including those acquired from Wilko going well. 

The retailer still expects to open at least 45 new B&M UK stores over each of its next two financial years ahead. 

Strong cash generation helped lower the company’s ratio of net debt to adjusted profits to 1.2 times from the prior year’s 1.3 times. 

Annual results are scheduled for 5 June.  

ii view:

Started in 1978, B&M currently operates 741 variety stores across the UK, along with 335 Heron Food and B&M express stores and 124 B&M branded outlets in France. A constituent of the FTSE 100 index and employing over 35,000 people, it competes against retailers such as Primark owner Associated British Foods (LSE:ABF), supermarket giant Tesco (LSE:TSCO), and even DIY retailers such as B&Q owner Kingfisher (LSE:KGF). 

For investors, the difficult economic backdrop for customers including elevated borrowing costs should not be forgotten. As with retailers generally, the weather can influence demand, costs for businesses generally and including wages are now higher, while an estimated price/earnings ratio above the three-year average suggests the shares are not obviously cheap.   

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On the upside, store numbers continue to grow, and diversity of both product and geographical location exist, with just 125 French outlets offering room for expansion. Its ratio of net debt to adjusted profit has reduced, while the shares currently trade on a forecast dividend yield of over 3%.   

For now, and despite ongoing risks, B&M’s core focus of product value and expanding store numbers is likely to keep long-term fans of this discount retailer sitting tight. 

Positives: 

• Diversified product range
• Previous payment of special dividends

Negatives:

• Uncertain economic outlook  
• Exposure to currency movements 

The average rating of stock market analysts:

Buy