- Strong first half results delivered
- Store roll-out target increased
- But UK growth slowdown spooks investors
Following a strong first half, discounter B&M European Value Retail (BME) has raised its full year earnings guidance and lifted its store roll-out target as the variety goods value retailer continues to profit from the cost-of-living crisis.
Why then, was the FTSE 100 shopkeeper out of favour with investors today, with the shares cheapening 4.5% to 515p in early dealings?
The big disappointment was the softer growth seen in the UK in the first six weeks of the so-called ‘Golden Quarter’ for retailers including Christmas, with like-for-like sales growth slowing from 6.2% in the first half to a meagre 1.6% as B&M lapped strong prior year comparatives.
However, B&M also reassured the market that momentum has proved ‘particularly strong in the last three weeks’, with like-for-like growth accelerating to 4.5% as it lured in shoppers with low prices.
VOLATILE BACKDROP
B&M also warned that the current ‘volatile’ background makes forecasting for the full year difficult.
Nevertheless, given strong first half results and the positive momentum at its heels, the retailer upped its full year 2024 adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) guidance to the £620 million to £630 million range, comfortably ahead of the £573 million generated in full year 2023.
The cut-price groceries-to-general merchandise seller is arguably the ultimate play on the cost-of-living crisis, retailing a range of goods at cheap prices spanning branded groceries and drinks to toiletries and cleaning products, homewares, garden furniture and even toys.
STORE TARGET UPGRADE
B&M, which recently agreed to acquire as many as 51 ex-Wilko stores from the administrator, now expects to expand its UK store estate to ‘not less than’ 1,200 outlets, a significant upgrade on the previous guidance of 950.
Results for the half to 23 September 2023 showed a 10.4% rise in group sales to more than £2.5 billion and adjusted EBITDA up 16.1% to £269 million, slightly below consensus expectations, driven by 6.2% like-for-like growth in the core B&M UK business and supported by a 26%-plus total sales rise in France.
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B&M’s expanding convenience store chain Heron Foods served up tasty 17% growth.
CEO Alex Russo said: ‘The move by consumers to discounters is a major trend in many countries and is set to continue over the long term. In the UK and France, we are at the forefront of this trend. In the UK, we have a little over 2% market share and much less in France, meaning there are many more years of growth ahead.’
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, commented: ‘Despite upgraded guidance on earnings and store roll-out ambitions, discount retailer B&M was out of favour with the market on its latest update.
‘A proposition of selling a range of discounted goods should chime with households which are looking to save money, so perhaps there was some disappointment at relatively sluggish like-for-like growth in the first six weeks of its “golden quarter”, even if the picture in the last three weeks has been more encouraging.
‘An admission that volatile market conditions make forecasting tough may also have been in the minds of investors.’
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 (Martin Gamble) own shares in AJ Bell.
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