Profits at B&M European Value Retail (BME) soared 17% in the first half as the rapid store expansion continued but the discount chain warned that prices on shelves were likely to rise in 2017 because of the slump in the value of sterling.
The group sources about 30% of its products from China and said today that it expected the significant fall in the pound since the EU referendum to lead to a rise in costs in the spring of next year when currency hedges come to an end.
CEO Simon Arora said: “This is likely to lead to inflation in the affected product categories but given our financial strength, buying scale and efficient sourcing we are determined to minimise the effects of these pressures on our customers, as we have done in the past in similar circumstances.”
Shares in the group have plunged more than 17% since the UK voted to leave Europe as investors worried fretted over the impact of buying low-cost goods from China with a weaker pound.
Revenues at the chain increased 19% to £1.1bn in the 26 weeks to 24 September as it opened another 20 net new stores, including its 500th shop. The business expects to open at least 50 new outlets this financial year.
However, like-for-like growth was just 0.2% as the 74 shops opened in the second half of the previous financial year led to some cannibalisation where there is already an existing store. B&M said underlying like-for-like sales were up 1.9% when this effect was stripped out.
B&M has a total of 585 stores, with 519 in the UK and 66 in Germany under the Jawoll fascia.
Adjusted EBITDA jumped 15% to £99.2m and adjusted pre-tax profits climbed 17% to £77.9m as a result of the hike in sales.
Chairman Sir Terry Leahy said B&M was equipped to prosper in the uncertain retail environment thanks to its “strong value proposition, unique sourcing model, financial strength and well-invested store network and infrastructure”.
“B&M has a proven strategy for growth with plenty of opportunity for high returning store expansion in our chosen markets, and we can fund that investment comfortably from our internal cash resources,” he added. “These characteristics are rare in modern retailing.”
Arora said: “B&M performed strongly in the first half of the financial year, serving customers well and delivering good growth in revenue, profit and cash flow. Naturally, we are mindful of the current economic uncertainties in the UK but given the strength of our retail model and with the full benefits now flowing from the step change investments we made last year in our store opening programme and new supply chain capacity, we are confident of meeting expectations during the remainder of this year.
“Everyone loves a bargain and when customers need to seek out value, our proposition comes into its own.”
Shares in B&M are up 2.2% to 244.3p at the time of writing this lunchtime, dropping back from the 4% surge when markets opened. The stock was down 15% in the past three months before the release of the half-year report as the City worried profits would be harmed by the weak pound. It is still trailing well below the 270p it floated at in the summer of 2014.
Analysts Wayne Brown and Adam Tomlinson at Liberum said: “The weakness in the shares as a good buying opportunity ahead of what should be a strong Christmas. There are not many retail companies that offer double-digit earnings growth, a secure yield, the prospect of annual or at least every 18 months special dividends yet is only trading on 16x earnings.”
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