4. B&M Bargains

B&M, Greggs and Next provided some early new year cheer as the trio posted positive Christmas trading updates this week.

Bargain hunters looking to stretch budgets helped B&M and Greggs, while Next raised profit forecasts following better-than-expected festive trading driven by demand for seasonal clothing.

B&M European Value Retail also lifted its full-year profits guidance thanks to double-digit growth in the golden quarter.

Revenues in the 13 weeks to 24 December increased 12.3% to £1.6bn as its French operation performed strongly and value frozen food retailer Heron Foods also posted good numbers.

The UK B&M business pushed sales 10.3% higher year on year, aided by weak comparatives and store expansion. Like for likes of 6.4% were also robust as shoppers traded down to discounters in the run up to Christmas.

The company boasted of strong customer transaction numbers and a good performance across all categories in grocery and general merchandise.

As a result of the performance, B&M tightened its guidance for annual EBITDA to a range of £560m to £580m, which is ahead of current analyst consensus of £557m.

It also announced a special dividend of 20p per ordinary share to reflect the strong trading period.

Investors reigned in excitement, with shares dropping back from early rises of 2.1% to a more modest 1% at the time of writing. However, the stock is up 5.7% so far in 2023 and by 25% over the past six months following a difficult period in 2022, which saw the company lose 35% of its value.

Greggs reported a 23% rise in annual sales to £1.5bn, with like-for-like figures up 17.8%, while it also managed to grow fourth-quarter figures by 18.2% despite train strikes and bad weather.

After a solid opening, shares in Greggs settled back to broadly flat at 2,444p by the afternoon.

Peel Hunt analyst Jonathan Pritchard said: “Christmas clearly happened for both [Greggs and B&M] (and doubtless the whole sector), and that is to a degree a relief, but it will only be the very best companies that are able to grow sales to a level that brings real operational gearing given the probable high inflation in the cost base in the year ahead.

“Greggs and B&M are fine companies, but the current share prices are there or thereabouts in terms of reflecting their prospects.”

AJ Bell investment director Russ Mould added that despite the severe cost-of-living crisis, certain retailers can still draw in the crowds if the proposition is seen to be good value for money.

“While restaurants might be suffering as more people eat from home, a £1.20 sausage roll ‘on the go’ is still seen as an acceptable purchase even if money is tight,” he said.

“B&M appeals to people who want to trade down from more expensive retailers, showing that the value proposition from a pricing perspective is a winning model in the current environment. Importantly, it talks about improved gross margins and more efficient supply chains, two areas which have been problematic for the retail sector in the past year.

“None of these three [B&M, Greggs and Next] companies are blind to the fact that consumers are still under significant financial pressure, yet if they’ve been able to successfully navigate a tough end to 2022, there is good reason to suggest they could continue to keep their chins up as we move through 2023.”