Discount variety retailer B&M European Value Retail (BME) delivered ‘strong profitable’ trading momentum across the business in the first quarter to 24 June as hard-pressed shoppers flocked to its stores. So why then, were the shares marked down 6.6% to 551.5p on the news?

It could be the lack of full year guidance, which implies no upgrades to earnings expectations.

In addition, shares in the FTSE 100 retailer have already had a strong run this year, up more than 30%, so perhaps some investors are banking profits while the going is good.

HOW DID B&M PERFORM IN Q1?

Very strongly is the short answer. B&M generated 13.5% revenue growth at group level to the best part of £1.32 billion for the quarter, while 9.2% like-for-like sales growth in the B&M UK business reflected good performances in both the grocery and general merchandise categories driven by ‘consistently strong and positive like-for-like transaction numbers’.

B&M characterised general merchandise sales participation and sell-through as ‘excellent’ in the UK business, which stands in stark contrast to peers Dollar General (DG:NYSE) and Poundland-owner Pepco (PCO:WSE), which are seeing cash-strapped consumers transition away from discretionary items.

Elsewhere in the group, sales growth at both B&M France and Heron Foods was impressive with revenues up 29.1% and 19.4% respectively to £117 million and £135 million.

And B&M assured the market that stock and cost disciplines remain ‘firmly embedded’ across the group.

WHAT DID THE CEO SAY?

Chief executive Alex Russo said B&M’s strong trading momentum ‘demonstrates the strength of our unchanged strategy to relentlessly focus on price, product and excellence in retail standards.’

Russo believes the business is ‘well positioned as we start to transition to our autumn winter season. We will continue to work hard to help all our customers manage the cost-of-living crisis.’

VIEWS FROM THE EXPERTS

Despite B&M’s positive update, Shore Capital maintains its belief that the shares are ‘fully valued’ and remains cautious due to ‘the increasingly challenging year-on-year comparisons expected for the remainder of the year, a worrisome increase in shrinkage, and the potential need for price adjustments to support low-income UK consumers.’

The broker also picked up on the odd absence of any mention of full year guidance from B&M, which Shore took to mean previous guidance for higher year-on-year adjusted earnings before interest, tax, amortisation and depreciation remains unchanged.

AJ Bell investment director Russ Mould commented: ‘B&M is the ultimate play on the cost-of-living crisis, offering a range of goods at cheap prices. Chief executive Alex Russo says the business has ‘strong trading momentum’ which is no wonder when interest rates keep going up.

‘A lot of people are feeling the pinch of the higher cost of borrowing and are looking for ways to trade down to cheaper items for the things they need in the home. This is not simply a pound store offering, B&M is a place for people to buy things like garden furniture, desks and kettles.’

Mould continued: ‘Argos used to be seen as the go-to place for such items, but it feels like B&M has taken over as the public’s favourite places to buy known brands at cheaper prices. Argos has suffered from its shrinking high street presence while B&M’s expansion has put its stores front of mind for the shopper.

‘This should provide long-lasting benefits. Even when the cost-of-living crisis fades away, B&M in theory should be able to keep many of the customers it won during the tougher economic times, particularly if it continues to offer good for value for money.

‘Yes, some people will naturally trade back up to more expensive places when the economy is stronger, but the fact the current crisis could last well into 2024 suggests that many shoppers will become so used to visiting B&M that their shopping habits become ingrained.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Ian Conway) own shares in AJ Bell.

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