Shares in B&M fell as much as 22% in early trading this morning after the discount retailer warned of lower profits due to weak sales in the UK. However, its new Chief Executive, Tjeerd Jegen, outlined a turnaround plan that includes price cuts, which he hopes will draw customers back to its stores.
The company is now forecasting that its half-year underlying EBITDA will decline by 28% to around £198m, while the annual figure is expected to be between £510m and £560m, down from £620m last year and below analyst estimates of £606m.
Across the six months to 27 September, like-for-like sales in B&M’s main UK business edged up 0.1%, with positive volume and value growth in general merchandise offset by a decline in FMCG sales.
The group noted that the timing of Easter and the early onset of good weather pulled forward demand for its general merchandise outdoor ranges in its 786 stores during the early part of the half-year, driving double-digit sales in April. Sales were then weak in May as this trend reversed, following which the business experienced a “progressive moderation” in sales declines in June and each subsequent period during the second quarter, aided by a shift towards higher average value products in general merchandise and some average selling price inflation in FMCG. However, the chain’s performance was still worse than expected in the second-quarter period, with like-for-like sales falling 1.1%.
Jegen, who became CEO in June and led a comprehensive review of the business, stated that B&M had identified problems such as inconsistent pricing of key items, poor shelf availability of popular products, and overly complex product ranges that confused customers.
His ‘Back to B&M Basics’ plan aims to return the UK business to sustainable like-for-like growth by cutting prices on key FMCG lines, simplifying product ranges, improving on-shelf availability, and “rebooting” its Managers Specials promotions.
Jegen noted that B&M had already sharpened its price position and was “moving with pace” in the other areas to “bring back excitement to our stores”.
He added: “We have more work to do, but we are confident these changes will restore consistent like-for-like sales growth over time.”
B&M expects the full impact of its turnaround efforts to take 12 to 18 months, with like-for-like growth and profit margins expected to stabilise in its next financial year.
Meanwhile, there was better momentum in the group’s smaller French business, where like-for-likes grew 5.2% during the half.
At Heron Foods, total revenues slipped 1.4%, with like-for-like sales “remaining pressured”. The group noted that work to strengthen the grocery chain’s performance, similar to that being undertaken at B&M UK, had recently started.
NAM Implications:
- In unprecedented times, with falling demand, faults like…
- inconsistent pricing of key items
- poor shelf availability of popular products
- overly complex product ranges that confused customers
- …cannot be allowed to waste demand.
- Preventing this ‘leakage’ has to be a priority…
