ii view: profits disappoint at B&M discount chain

Shares in this former pandemic winner have headed significantly lower during 2022. We assess prospects.

First-half results to 24 September

• Revenue up 1.8% to £2.31 billion
• Adjusted profit (EBITDA) down 18% to £232 million
• Interim dividend unchanged at 5p per share
• Net debt up 12% to £736 million

Chief executive Alex Russo said:

"Sales momentum is good as we enter a difficult period for the economy and consumers. Our value-based approach is winning with existing and new customers, and we will do our very best to help them weather the cost-of-living crisis. We are well positioned as we trade through the Golden Quarter and our strategy remains unchanged - a relentless focus on price and product.”

ii round-up:

Value goods and food retailer B&M European Value Retail SA (LSE:BME) today detailed profits below City expectations, as the late arrival of warm summer weather forced price markdowns across its gardening product category. 

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Adjusted profit for the six months to late September fell by nearly a third to £232 million, below analyst estimates nearer to £243 million. 

B&M shares fell by more than 6% in UK trading having come into this latest update down around 40% year-to-date. That’s similar to shares price falls seen at both Amazon (NASDAQ:AMZN) and Halfords (LSE:HFD), which also benefited from trading under the pandemic. 

Second-quarter B&M same store sales year-over-year rose 2%, exceeding analyst forecasts for a fall of close to 1%, with trading during the early weeks of the current Christmas quarter up 2.5% on the same basis.  

The FTSE 100 retailer, with a stock market value bigger than that of Marks & Spencer Group (LSE:MKS), reaffirmed its expectations for full-year adjusted profit to come in at between £550 million and £600 million. That’s up from a pre-pandemic 2019 outcome of £342 million. 

An interim dividend of 5p per share is unchanged from that paid this time last year. Group net debt rose by just over a tenth year-over-year to £736 million, although remains comfortably below management’s upper ceiling. 

A third-quarter trading update is likely to be announced in January. 

ii view:

Founded in 1978 with its first store opening in Blackpool, B&M listed on the London Stock Exchange in June 2014. Today it operates 704 general UK stores alongside a portfolio of 314 UK Heron food outlets and 111 French discount stores. Newly promoted chief executive Alex Russo, who joined B&M in October 2020, previously held senior positions at Tesco (LSE:TSCO), Asda, and Kingfisher (LSE:KGF). 

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For investors, a highly uncertain economic outlook and a cost-of-living crisis make for a tough backdrop. Costs generally for businesses are rising, taxes may soon rise to help plug a fiscal hole in the government’s finances, while the loss of its previous and highly experienced CEO should not be forgotten.  

On the upside, plans to expand its store numbers remain, with over 900 B&M UK general stores targeted compared a current 704. Its track record for controlling costs is strong, while group debt remains relatively low and a forecast future dividend yield of over 3.5% relatively attractive. 

On balance, while room for longer term optimism persists, obvious headwinds could make progress difficult in the months ahead.

Positives: 

• Diversified product range
• Both UK and French store outlets

Negatives:

• Uncertain economic outlook  
• Exposure to currency movements 

The average rating of stock market analysts:

Strong hold