Terry Leahy-chaired discounter B&M European Value Retail (BME) is marked down more than 10p (3.13%) to 309.6p, despite unveiling an impressive 25.4% interim pre-tax profit hike to £66.4 million. Disappointment centres on a mixed outlook statement from the variety value retailer, which flags hitherto disappointing sales in the build-up to Christmas.
B&M, a multi-price discounter and rival to Poundland (PLND), sells an array of fast moving consumer goods (FMCG) brands and non-grocery products at the keenest of prices. The Liverpool-headquartered company appears to have experienced some growing pains, having accelerated its UK store expansion drive to capitalise on a strong pipeline of attractive sites.
In fact, B&M opened 47 new stores in the 26 weeks to 26 September, a record rate of openings for the company, up from 20 net new openings a year earlier and bringing total UK stores up to 472 outlets. CEO Simon Arora, who acquired the business with his brother Bobby back in 2004, then floated it on the London Stock Exchange last summer, explains 'the business is growing at an annualised rate of over £400 million per year, which brings its own operational challenges.'
In the outlook statement, B&M, also expanding in Germany under the JA Woll fascia, says two new UK warehouses in Runcorn and Middlewich are now up and running and will provide capacity to support further growth. Yet their introduction, 'allied to the greater-than-budgeted store opening level, has brought some short-term operational challenges and hence an effect on like-for-like sales performance in the build up to our peak trading period'.
Specifically, 'our UK new store programme has been larger in recent months than we had originally planned for, and, given the introduction of the two large new distribution centres during the period, we have experienced below-normal service levels to stores as we approach peak trading. This will have a short-term impact on overheads and in-store product availability.'
In addition, B&M warns the 'unusually mild temperatures have led to a slow start for cold weather and seasonal ranges', though the reassuring news is 'we are confident both in the full-year outlook and in the longer term potential for our unique retail model as we continue the roll out of our store estates in the UK and Germany'. News of a slow start to the peak selling period takes the shine off of otherwise strong half-time figures, showing strong improvements in sales, profits and cash generation as well a dividend hike from 0.9p to 1.6p.