B&M high level store image
Investors were disappointed by decelerating third quarter growth and the absence of upgrades from B&M / Image source: B&M
  • Sales up 5% in ‘Golden Quarter’
  • Retailer declares 20p special dividend
  • But Q3 growth slowdown disappoints

Bargain stores giant B&M European Value Retail (BME) delivered ‘strong profitable growth’ in the third quarter including the run-in to Christmas, with group sales rising 5% year-on-year to the best part of £1.65 billion.

The variety retailer also reiterated full-year guidance and treated investors to a 20p special dividend following another period of very strong cash generation.

Why then, did shares in the FTSE 100 retailer and one of Shares’ key picks for 2024 cheapen 1% to 556p in early dealings?

It seems investors were unimpressed by decelerating third quarter sales growth and the absence of upgrades as well as this year’s much shorter post-Christmas trading update.

RESILIENT SHOWING

B&M’s third-quarter trading period was resilient, but the pace of growth did slow from the rate reported at the half-year stage.

For the third quarter to 23 December, UK sales growth slowed to 3.7% versus the previous year’s tough 6.4% comparative, although sales at the B&M France and Heron Foods businesses continued in double-digit territory.

In the 14 weeks to 30 December 2023, like-for-like sales growth from the core B&M UK business was a modest 1.2%, a solid enough showing given a very tough prior year comparative and driven by positive transaction numbers.

But while B&M cited an ‘excellent general merchandise volume performance’, there was no mention of food and Shore Capital said the core chain’s like-for-like performance implied a ‘notable same-store food volume decline’ in the period.

WHAT DID THE CEO SAY?

Chief executive Alex Russo said B&M’s performance across the Golden Quarter was ‘pleasing, with strong operational execution across the three businesses. Our strategy remains unchanged - we are an everyday low-price discounter with a laser-focus in keeping excellence in retail standards and our costs the lowest. This allows us to provide our products at the best price to all customers - many of whom continue to face significant cost-of-living pressures.’

At the forefront of the consumer trend towards trading down, B&M reiterated guidance for group adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) in the £620 million to £630 million range.

That is up from last year’s £573 million haul and implies healthy year-on-year growth of roughly 9%.

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‘Our store pipeline is strong and we will open not less than 45 B&M UK stores in each of the next two financial years, driving disciplined cash generating growth,’ added Russo.

Management also noted that reports of delays in deliveries due to disruption in the Red Sea were not currently an issue for B&M.

EXPERT VIEWS

Edison analyst Russell Pointon said: ‘Reiterating the FY24 adjusted EBITDA guidance of £620 million to £630 million, which was increased at the interim results stage, reflects confidence in sustained growth. B&M’s ability to navigate economic uncertainties and focus on its everyday low-price approach positions it well for future success, emphasising a strong outlook and strategic execution.’

Russ Mould, investment director at AJ Bell, remarked that Aldi and Lidl’s strong Christmas trading updates last week implied shoppers were turning to the discounters in their droves and B&M has ‘come within a whisker of joining the celebrations’.

Mould said: ‘B&M is a general merchandise group and has its fingers in many pies, meaning it is a good bellwether for the retail sector. A slowdown in sales growth has become a common theme in the retail industry, particularly among fashion sellers. While disappointing that B&M has joined the club, it is not alone in suffering this fate.

‘Investors can find reassurance that a 20p per share special dividend may not have been declared if management was feeling worried about the outlook. Yet the market reaction to the trading update understandably portrays a tone of disappointment on behalf of investors.’

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

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Issue Date: 09 Jan 2024