B&M has trimmed its profit guidance for the year after trading over the Christmas period came in weaker than expected.
In a third quarter trading update for the 13 weeks to 28 December, the discount chain, which includes frozen retailer Heron Foods, said group revenues were up 2.6% year on year.
However, like-for-like sales in the UK – by far its biggest market – fell 2.8%. This is the third successive quarter of like-for-like decline, though B&M did highlight a return to growth in December and early January.
As a result, the chain cut its full-year EBITDA guidance to £620-650m, down from £620-£660m in its half-year results.
B&M also confirmed a special dividend at 15p, below consensus expectations of 21p. Investors were unimpressed, with its share price down 9% in early trading on Thursday.
“Overall, while the business has once again delivered on growth and showcased its high cash generation, it remains a challenging retail environment,” said David Hughes, a research analyst at Shore Capital. “Three quarters of LfL sales decline remains a concern.”
B&M CEO Alex Russo said its performance across the ‘golden quarter’ reflected disciplined operational execution across the businesses, driving volume and in turn profit growth.
He added UK gross margin and profit performance were strong in the quarter, with a clean inventory exit position and availability strong in January.
“Our operating model is well set up to give customers exceptional value when they need it most. Pricing, availability, store standards and a disciplined opening programme will underpin positive volume growth across our ranges,” Russo said.
This means that while B&M’s share price is subdued, some analysts believe the business could be undervalued. “B&M’s value proposition is well placed – given ongoing pressure on consumer budgets – to take market share in a structurally growing discount segment,” said Kate Calvert, an analyst at Investec.
“It has a robust business model with its competitive advantage coming from its volume-driven focus, low-cost discipline and operational excellence in-store.”
There are concerns, however, that B&M could be more exposed to recent increases in minimum wage and National Insurance costs than its competitors because many of its warehouses and stores rely heavily on manual labour rather than automation, according to Orwa Mohamad, an analyst at Third Bridge.
But Mohamad suggested that B&M’s lower capital expenditure could help balance this compared with more automated competitors.
B&M is looking into relocating the parent company’s domicile, with Jersey and Ireland the two possible destinations under review. The company intends to retain its London listing, however, regardless of the outcome.
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