Bumpy times ahead for discount retailer B&M
B&M’S share price slumped almost 12 per cent last Tuesday when it released its full-year results.
The discount chain had reported sales of £4.7billion – down 2.4 per cent on last year, once the effect of different currencies is stripped out.
In the UK, which accounts for most of the revenue, like-for-like sales were down 9 per cent.
B&M’s track record of good cost control meant that cash profits of £619million were slightly better than some analysts expected, but this was not enough to console investors.
The severe market reaction was mainly due to B&M’s outlook. With inflation soaring, the firm should be well placed to capture new customers who are looking to shop at a less expensive retailer. However, its existing core customers are likely to be the ones worst affected by the cost-of-living crisis and consequently spend less.
This trend is already trickling through because the start of the financial year has been tepid. Like-for-like sales for the first eight weeks of 2022 were down 13.2 per cent on last year, and down 11.5 per cent on the year before.
The group also expects to increase discounting. This is an effective tool for getting more items through the tills, but isn’t good news for margins.
For all the challenges, B&M still generates cash flow. This means it isn’t in financial distress and has resources to invest in the business and return money to shareholders. In fact, last week the firm announced a final dividend of 11.5p.
However, investors should be prepared for the dividend to come under pressure if the challenges persist. Especially when you consider B&M has already returned around £500million to shareholders over the last two years.
There’s an awful lot for chief financial officer Alex Russo to take on when he becomes CEO next April.
B&M has some real strengths in the current environment, as its low-cost options become more attractive to consumers. However, it’s hard to see how it can generate meaningful profit growth in the medium term.
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