B&M was a clear winner from the pandemic as its stores stayed open through lockdowns, but the City sent its shares down by double digits on Tuesday amid concerns over changing leadership and a downturn in sale and profits.
Announcing its results for the year to 26 March on Tuesday, B&M said group revenues decreased by 2.7% on prior year to £4.7bn, while B&M UK fascia revenue dropped 4.1% year on year as like-for-like revenues slumped 9%.
This downward trend has also accelerated since year-end, with B&M UK like-for-likes over the first eight weeks of its 2023 financial year down 13.2% and 11.5% versus 2022 and 2021 respectively.
However, B&M stressed that on a two-year basis its annual revenues remained up 22.5%, while B&M like-for-likes were up 13% over the same period with sales densities significantly higher than pre-pandemic levels. In its new financial year, like-for-like sales were still up 7.7% in April 2022 on a three-year basis.
The group said that most product categories delivered double-digit like-for-like growth over a two-year period, with notable strength seen in general merchandise ranges. Its strong performance in this category meant B&M UK gross margin benefited from another small step up this year, together with a high sell-through rate on seasonal ranges.
Group adjusted EBITDA edged back slightly to £619m from £626m, slightly above consensus expectations.
Notably, though, the company guided to a drop in underlying profits for the coming year, back to £550m-£600m amid an uncertain macroeconomic environment, spiking inflation and the effects of category mix resetting towards lower margin categories, such as food and personal care.
While this remains well above the pre-pandemic level of £324m, it is down on the figures recorded in the past two years.
B&M shares fell 15% on Tuesday back to 389.7p – their lowest level for almost two years, with sentiment not improved by B&M’s announcement of a succession plan for CEO Simon Arora, with CFO Alex Russo named as his replacement.
Peel Hunt commented: “There is no doubt that B&M is an impressive machine, but even the best machines splutter when the driver changes and the loss of Simon Arora is significant, no matter how worthy Alex Russo is.”
AJ Bell noted that B&M is “simultaneously losing the tailwind it had during the pandemic… and its value-based proposition means margins are pretty skinny and therefore vulnerable to inflation.”
However, Liberum insisted the share price reaction was “overdone”, adding: “B&M is a significantly improved business compared to pre-pandemic, now boasting very strong EBITDA margin and remains favourably positioned to take share in a consumer downturn.”