B&M shares slide as margin woes overshadow a good summer
While warm weather and strong sales of garden furniture helped group revenue rise 4.4 per cent year-on-year to £1.41 billion in the 13 weeks to June 28, shares in the discount retailer fell more than 12 per cent on Tuesday — their lowest level since November 2016.
Investors reacted sharply to the finer details. Like-for-like sales in the core UK business rose just 1.3 per cent, while fast-moving consumer goods (FMCG) sales — which includes snacks, cleaning products, baby care and toiletries — were in decline over the period.
• Why B&M is the new middle-class shop of choice
The company also flagged a squeeze on trading gross margins due to deflation in average selling prices across some general merchandise categories, though it expects this pressure to ease in the second quarter as new, higher-margin ranges are introduced.
Analysts at Panmure Liberum said: 'Despite favourable trading conditions and soft comparatives, today's performance was, in our view, somewhat disappointing and does little to ease fundamental concerns around the health of the FMCG grocery channel.'
The analysts were 'surprised by the softer tone around gross margin performance in that category. On this basis, fears of a potential margin reset may persist, keeping earnings volatility elevated — we suspect like-for-likes will struggle to maintain momentum for the remainder of the year.'
Deutsche Bank also labelled the results 'disappointing'.
Founded in 1978, B&M operates 777 B&M stores and 343 Heron Foods stores in the UK, as well as 135 B&M stores in France. Like others in the discount sector, it has faced intensifying competition and consumer pressure from the cost of living crisis, with both factors hitting profit margins and spending habits.
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Heron Foods posted a slight 0.4 per cent year-on-year decline in sales during the quarter, though momentum was stronger in France, where revenue rose 7.6 per cent, with like-for-like growth of 1.1 per cent.
B&M said UK general merchandise sales increased on both a like-for-like and total basis, with particularly strong performances across garden, toys and DIY, despite price deflation.
While FMCG sales remained negative for the quarter, the group said performance in health and beauty and cleaning categories had improved in June, 'following the improvements made in operational execution'. Work was continuing to strengthen its overall FMCG proposition, its bosses said.
Tjeerd Jegen, the newly appointed chief executive, said: 'While B&M UK's like-for-like sales are growing, I see a significant opportunity and requirement to sharpen our commercial and operational execution as we move towards and beyond the golden quarter.
'Looking ahead, my focus is on building on our strong foundations, leveraging our market position and continuing to deliver exceptional value for our customers.'
Jegen, a former Tesco executive, took over from the interim chief executive Mike Schmidt last month, following the departure of Alex Russo after three years in the role.
The group said it remained on track to open 45 gross stores over the full year. Eighteen gross new B&M UK stores were opened in the first quarter.
Half-year results for the 26 weeks to September 27 will be published on November 13, when B&M will provide full-year profit guidance.
Shares in B&M, which have almost halved in value in the past 12 months, retreated another 7.2 per cent, or 18½p, to 239¼p in late-afternoon trading on Tuesday.
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