B&M faces a “moment of truth” over the Christmas period after splitting opinion on its financial results for the first half of the year.
The company maintained its profit guidance for the full year after group revenues rose 3.7% to £2.6bn due to strong volume growth.
“This is a good performance as we annualise a record prior year of earnings growth with strong first half comparatives,” said CEO Alex Russo.
However, like-for-like sales in the UK fell 3.6% meaning most of this growth was fuelled by opening new stores. This is worrying some investors, who are concerned about the company’s climbing lease liabilities.
B&M opened 39 new stores in the six months to 28 September as it looks to hit its long-term target of 1,200 UK stores, up from 764 today.
“Discount chain B&M has had a rough year and while these latest first-half results didn’t exactly knock it out of the park there was enough encouragement for investors to latch on to,” said AJ Bell investment director Russ Mould.
B&M’s share price has struggled this year, with its price down 34% relative to the all-share index. Many investors are wary of the retailer’s history of vague forecasting and these results, unusually, did not include any mention of its performance in the latest third-quarter.
“There may be a touch of disquiet at a lack of guidance on third-quarter trading and the ‘golden quarter’ could be a moment of truth for B&M,” said Mould. “It faces a tough competitive environment, with pressure not only from direct rivals like Home Bargains but also the supermarkets.”
While the early reaction in the markets was largely positive with B&M’s share price up 5%, there continue to be dissenting voices.
“B&M has been a bit of a rags-to-riches story, however, the engine has cooled materially and this H1 performance fulfils all of our prior apprehensions,” said Shore Capital analyst Clive Black.
Black raised concerns over B&M’s transparency, pointing to its reporting of like-for-like sales (LFL) in the UK but excluding the information for the whole group. This is “brewing a storm and is somewhat cowardly”, said Black.
He added: “The erosion of reporting transparency, largely around LFL sales, is a sign of weakness not strength to us in B&M’s headline performance, as if market participants will not suss it out,” he added.
Elsewhere, however, the reaction was more positive. “B&M’s laser focus on price means its value-for-money advantage is widening and volumes are growing, especially and crucially in non-food,” said Peel Hunt. “We expect continued strong sales-led growth, towards the top end of our structural growth subset.”
Bobby Arora, the group’s trading director who bought B&M with his brother in 2004, will retire in March 2025 and be replaced by Gareth Bilton, who has been with the company for 25 years.
B&M is also planning a new imports centre in Cheshire to support its hundreds of new stores. This will manage inbound container flow and optimise the capacity of its five distribution centres.
No comments yet