Shares in discounter B&M European Value Retail (BME) bounced 3.4% higher to 382.1p on Friday after the general merchandise value retailer reported bumper fourth quarter grocery sales and a strong start to the new financial year, driven by ‘exceptionally strong’ DIY and gardening categories.
However, the Liverpool-headquartered retailer also flagged rising costs to cope with COVID-19 and cautioned that it doesn’t expect the momentum to continue as UK lockdown measures are eased.
‘EXCEPTIONALLY STRONG’ MARCH
In a bullish update ahead of final results on 11 June, B&M reported a strong finish to the fourth quarter ended 28 March 2020.
This was driven by an ‘exceptionally strong March performance on grocery’, as shoppers splashed out on food for the lockdown period and stayed at home instead of venturing out to work. This sent like-for-like sales for the core B&M UK fascia up 6.6% over the quarter.
B&M also highlighted bumper sales growth in the first eight weeks of the new financial year, with B&M UK fascia like-for-likes leaping 22.7% higher, driven by exceptionally strong DIY and gardening product sales.
RISING COSTS AND A NOTE OF CAUTION
Chief executive Simon Arora commented: ‘Customers have been coming to our stores much less frequently through the lockdown but their average spend has been much higher than normal. I would like to thank them for their patience and consideration in observing social distancing inside and outside our stores during this period.’
B&M warned that its UK business is incurring higher than normal operating costs in distribution and at stores, amid the application of social distancing measures needed to protect customers and staff, as well as the payment of premium wage rates during the COVID-19 peak period.
‘We have seen a significant bring-forward of demand in some key categories and the remarkably warm spring weather in the UK has been a major factor behind this during recent weeks,’ continued Arora.
However, he is ‘not expecting this current level of trading to continue as normal shopping patterns resume. Clearly, there is also considerable uncertainty in relation to both the progression of COVID-19 and the economic outlook and it is therefore hard to predict future trading levels.’
WARNING FOR OTHER RETAILERS?
Russ Mould, investment director at AJ Bell, commented: ‘The big sales advance for discount chain B&M European Value Retail is striking given it coincided with the worst of lockdown conditions as its homewares and groceries status allowed it to keep trading throughout.
‘With people stuck at home the company’s budget DIY and gardening products have clearly gone down a storm. With stores that were closed now reopened it will be interesting to see if this proves to be a one-off phenomenon or a continuing trend.’
Mould added: ‘As has been the case for its supermarket counterparts, the company’s bumper sales have come at a cost. The introduction of social distancing measures and paying staff premium wages to incentivise them to work at the peak of the pandemic will take a big chunk out of the outsized revenue generated in recent weeks.
‘This is a bit of a warning for other retailers as they prepare to lift the shutters. Some have already warned it may not be profitable to reopen in a post-coronavirus new normal.’