City patience is running out with B&M after the retailer issued its latest profits warning on Monday, with adjusted EBITDA for the year now expected to be in the range of £605m-£625m.

It’s the second downgrade since the start of 2025, as full-year guidance had already been adjusted in January – from £620m-660m to £620-£650m.

The retailer’s share price has crashed by 45% in the last 12 months and 36% in the last six. And while analysts are split over how much blame lies with outgoing CEO Alex Russo, there is greater consensus it is no coincidence that the announcement of his intention to retire came alongside the latest downgrade.

He departs with effect from 30 April, remaining eligible for his annual bonus in the current financial year, and with thanks from B&M chair Tiffany Hall “for his commitment, energy, dedication and hard work since joining the business in 2020 and, in particular, since becoming CEO in September 2022”.

The recruitment process for his replacement is in “advanced stages” with the support of a leading executive search firm, according to B&M’s market update.

A flattering note from Peel Hunt says: “Russo was not everyone’s cup of tea but he progressed the business significantly and his eye for in-store detail will be missed”, adding that “strategically” the former Asda CFO “has done little wrong”.

B&M’s ‘disappointing performance’

Panmure Liberum research analyst Wayne Brown believes his retirement and the downgrade “are unlikely to be mutually exclusive events”, after B&M’s “disappointing” performance for the past year. Its same-store UK like-for-like sales fell 3.6% in the first half to 28 September 2024 and 2.8% in the third quarter to 28 December.

AJ Bell investment director Russ Mould adopts a less conciliatory tone. “Time has run out for Alex Russo to get B&M back on track,” he says.

“The market has lost faith in the business amid a slowdown in growth over multiple consecutive quarters. Someone had to take the blame and it’s inevitable the CEO falls on their sword.

“The energy has disappeared from B&M precisely at a time when it should have been thriving. The discount retail sector is highly competitive, and B&M needs to do something different to get back on top.

“It should have enjoyed a purple patch as lower-income households rely on the brand for affordable goods,” adds Mould. “Instead, the wheels seem to have come off the wagon.”

So, why has B&M been struggling of late? And what are rivals doing better?

The wheels have come off

B&M has been focused on expansion. Like Poundland – which is currently addressing a disastrous slump in sales – it saw an opportunity in Wilko’s collapse in August 2023, and took on scores of its former stores. Of the 47 stores it opened in the financial year to 30 March 2024, 21 were old Wilko sites. It also upped its long-term target to 1,200 B&M stores in the UK (from about 770 currently), saying it provided “a clear runway of profitable growth”.

Its latest results said it was on course to open another 45 gross stores in the UK this financial year.

But “just rolling out new stores is not the answer”, says retail analyst Nick Bubb, as Poundland has also found. “B&M badly needs a response to the loyalty card discounts offered by Tesco and Sainsbury’s in food, and in non-food it needs to get into online shopping.”

Online home delivery – which B&M launched in June 2022, for around 1,000 larger items – was dropped less than a year later.

Its 2023 annual report said: “B&M operates in a number of markets where sustainable and profitable online business models remain unproven and this is to our advantage, where we offer low prices without suffering from margin dilution due to cross-subsidisation of online activities.”

Home Bargains is likely to disagree, having offered home delivery for well over a decade. The service has expanded over the years, and currently covers a vast range of GM from sheds to beds, as well as fmcg. It also manages to offer free delivery on selected items and promises “hassle-free returns” via post or in store.

Tech vs tradition

If B&M is still looking for proof online can be sustainable and profitable for a discounter, without diluting its bricks & mortar operation, it could refer to its rival’s latest annual accounts. Home Bargains’ operating profit shot up by 34.2% to £434m in the year to 30 June 2024. Turnover rose by 11.7% thanks to “increased contribution from existing stores” as well as new sites, just as B&M’s like-for-likes were falling.

One difference between the two is Home Bargains’ advanced level of automation. Joe Morris, brother of founder Tom Morris, stepped down after 22 years as a director to launch Arms Innovations, an automated warehouse business borne from an internal Home Bargains tech solution.

And Home Bargains is in the process of opening what it claims is a “highly automated” one million sq ft distribution centre in St Helens, Merseyside, where up to 80% of stock picks will be done by machine. Along with tech partner Witron, it aims to “create the most successful and advanced automated logistics operation in the UK”.

B&M, meanwhile, has frustrated investors with a low-tech approach.

“While many have been swept along by the efficiency gains promised by AI and automation, B&M has opted for a more traditional approach that still relies heavily on human labour in warehouses and stores,” Third Bridge senior analyst Orwa Mohamad wrote for The Grocer last month.

This labour-reliant approach is even more concerning thanks to the extra costs heaped on companies by October’s budget, with increases in employers’ National Insurance and the national living wage already leading to waves of job cuts in supermarkets.

Shore Capital’s Clive Black warns of a “cost iceberg to come” for B&M.

“No gimmicks, no loyalty cards,” B&M told customers last year, in an EDLP campaign under the vague strapline ‘Big Food Event’.

As well as adopting “exceptionally poor market messaging”, it has “misjudged the power of Tesco Clubcard Prices”, says Black.

Lidl Plus is proving powerful, too. If it’s a gimmick, shoppers don’t seem to mind, with 38% of them actively using the app [NIQ May 2024], helping Lidl to be the fastest-growing bricks & mortar supermarket in Kantar data over the past 17 months.

Overpromising and underdelivering

AJ Bell’s Mould agrees that B&M’s “marketing tactics haven’t been good enough to convince shoppers they need to choose” the retailer.

For those that are convinced, the proposition that greets them has weakened, because B&M has “milked non-food gross margins to the detriment of the quality of the assortment”, argues Black.

But whatever the strategical weaknesses may be, Russo’s “cardinal sin” in investors’ eyes has been “overpromising and underdelivering” by being “too aggressive with earnings guidance”, Mould adds.

Alongside Russo’s departure, long-time trading director Bobby Arora – who bought B&M with his brother in 2004 – will be retiring next month, which “may be a concern for some”, according to Panmure Liberum’s Brown.

But some optimism remains. “The new CEO may seek to sacrifice margin to try and galvanise performance and get the fascia to resonate with both customers and shareholders once more,” says Mould.

Peel Hunt believes “the new store opening programme is likely intact, as is the very cash-distributive model”, and “would not expect the new CEO to come in and make major changes” beyond bringing “new tactical ideas”.

Whoever it is would do well to hitch their wagon to the “tactical ideas” already being used by some of B&M’s peers.

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