B&M Whitby

Source: B&M Retail

Good weather benefitted trading in Q1

B&M shares plunged to an all-time low this week despite the discounter returning to growth in the UK for the first time in more than a year.

On the face of it, the maiden results from CEO Tjeerd Jegen, who took up his post in June, looked positive as UK like-for-like sales grew 1.3% in the 13 weeks to 28 June, helping group revenues increase 4.4% year on year to £1.4bn.

However, fmcg sales remained in negative territory and overall growth in the UK – which was below City expectations – was propped up by benefits of good weather and the timing of Easter.

Markets also reacted unfavourably to concerns over the struggling chain’s margins coming under pressure from deflation in average selling prices in some general merchandise categories.

B&M said this pressure would ease in the second quarter as it annualised the impact of the lower prices and higher-margin ranges were introduced.

Investors raced for the exit on the back of the first-quarter update, with the share price crashing by as much as 12% on Tuesday morning. The stock settled to finish the day at 8.6% lower.

But the gloomy trajectory continued through the week, and shares are down 13.1% over the past five days, hitting an all-time low earlier today (17 July) of 227.4p.

B&M has shed more than 36% of its market cap so far this year as the retailer battled declining sales and shrinking profits, issuing a profits warning and losing CEO Alex Russo in February.

Wayne Brown of Panmure Liberum called the Q1 results “somewhat disappointing” given the favourable trading conditions and soft comparatives, doing little to easing fundamental concerns around the health of the fmcg grocery channel.

“We had previously understood that average selling prices deflation in general merchandise had been funded by suppliers, so were surprised by the softer tone around gross margin performance in that category,” he added.

Dan Coatsworth, investment analyst at AJ Bell, said the market was clearly losing patience with B&M’s ability to deliver meaningful like-for-like growth.

“There was no updated guidance for the full year – investors will have to wait until first-half results in November for that information – but the tenor of this announcement raises the prospect of Jegen seeking to reset expectations to provide him with the room to turn things around for the business,” he added.

“Achieving some genuine sales momentum is probably top of the market’s wish list and the update is a reminder it will take time to fix the problems which led to the departure of Jegen’s predecessor.”

GlobalData retail analyst Emily Scott reckoned B&M should prioritise revitalising its fmcg range by focusing on product availability, competitive pricing and elevating the customer experience.

“This could involve offering a loyalty program to incentivise repeat purchases, foster loyalty and better compete with the grocers,” she said.

Jonathan Pritchard of Peel Hunt sounded a more optimistic note for the future.

“It is disappointing that LfL was only just positive, but this was a time of great change in the business and, with the new CEO in place, we look forward to forecast momentum returning, which should be a fillip to the cheap shares.

“More excitement, energy and agility in the range to keep customers coming back to the stores is the aim. There are some good early signs.”