Shares in discount retailer B&M fell by more than 10% this morning after it lowered the top end of its annual profit forecast following a disappointing Christmas trading period and concerns about higher costs this year.
In its third quarter to 28 December, B&M’s revenue in the UK rose 2.8% to £1.39bn, boosted by new store openings. However, like-for-like sales slid 2.8% as cash-strapped shoppers limited their spending over the key Christmas period. This was the chain’s third successive quarter of decline, although B&M stressed that it returned to growth in December and early January, driven by both FMCG and general merchandise.
The company now expects annual adjusted core earnings within a range of £620m-£650m, compared with £620m-£660m previously. Investors were also unimpressed after B&M confirmed a special dividend at 15p, below expectations of 21p
The retailer’s Chief Executive, Alex Russo, stated that its performance across the ‘golden quarter’ reflected disciplined operational execution across the businesses, driving volume and, in turn, profit growth.
He added: “The business remains undistracted by the current economic headlines. Our operating model is well set up to give customers exceptional value when they need it most. Pricing, availability, store standards and a disciplined opening programme will underpin positive volume growth across our ranges.”
Some analysts raised concerns that B&M could be more exposed to the upcoming increases in the minimum wage and national insurance contributions than its competitors because many of its warehouses and stores rely heavily on manual labour rather than automation.
However, Kate Calvert, an analyst at Investec, was more upbeat on its prospects. She said: “B&M’s value proposition is well placed – given ongoing pressure on consumer budgets – to take market share in a structurally growing discount segment.
“It has a robust business model with its competitive advantage coming from its volume-driven focus, low-cost discipline and operational excellence in-store.”
NAM Implications:
- The relatively small annual adjusted core earnings of £620m-£650m vs earlier £620m-£660m…
- …indicates how jittery the stock market is in the current economic climate.
- Anything that adversely impacts retail…
- …hits the consumers’ pocket adversely.
- How many examples will it take?
