ii view: value retailer B&M maintains momentum in latest quarter

A FTSE 100 value-focused retailer with plans to open more stores both here and in France. Buy, sell, or hold?

First-quarter trading update to 24 June

• Total revenue up 13.5% to £1.32 billion
• UK like-for-like revenue up 9.2%

Chief executive Alex Russo said:

"Our strong trading momentum demonstrates the strength of our unchanged strategy to relentlessly focus on price, product and excellence in retail standards.  The business is well positioned as we start to transition to our autumn winter season. We will continue to work hard to help all our customers manage the cost-of-living crisis."

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ii round-up:

Value goods and food retailer B&M European Value Retail SA (LSE:BME) today reported sales growth across all its businesses as cost pressured consumers continued to seek out low priced offerings. 

Total sales for the first quarter to late June rose 13.5% to £1.32 billion, with sales for its core UK B&M stores climbing 11.3% to £1.07 billion. 

Shares in the FTSE 100 retailer fell around 5% in UK trading having come into this latest news up by more than a fifth over the last month alone. They've almost doubled since last October's low to their highest in over a year. Primark owner Associated British Foods (LSE:ABF) is up by around 8% over the last month, while retailing mammoth Tesco (LSE:TSCO) is down around 3%. B&M’s update follows the Bank of England’s recent hike in interest rates to a 15-year high.

B&M operates across  three areas of B&M UK, Heron Foods in the UK, and B&M stores across France. B&M UK sales excluding new openings, or like-for-like sales, rose 9.2%, pushed higher by both grocery and general merchandise categories. That compares to a 9.1% fall this time last year when sales compared with the pandemic boom. Due to its food offering, B&M stores were allowed to stay open during the Covid crisis. 

Heron Foods sales during the quarter rose 19.4% to £135 million. Sales at French discount outlets, which use to trade under the Babou banner following their acquisition, rose 29.1% to £117 million. 

The retailer plans to open around 30 new UK B&M stores this year, along with 10 in France and 20 Heron Foods stores.  

Adjusted profit over its last financial year to the end of March fell 7.4% to £573 million, given the prior pandemic boost, although is up from £342 million made in the year just before the pandemic. 

First-half results to late September are scheduled for 9 November. 

ii view:

Founded in 1978 in Blackpool, B&M today operates 1,146 general and food discount stores across the UK and France. Just over 700 B&M stores in the UK account for most of its store outlets. A constituent of the FTSE 100 index since September 2020, its current chief executive, who joined in October 2020, previously held senior positions at Tesco, Asda, and Kingfisher (LSE:KGF). 

For investors, the uncertain economic outlook offers a tough backdrop for all retailers. Costs for all businesses remain elevated, UK tax increases need to remembered, while a forecast price/earnings ratio above the three-year average may suggest the shares are not obviously cheap.   

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On the upside, store number expansion across all its banners is planned, with around 950 UK B&M stores targeted, a 35% increase on today’s 700 odd. Under 120 stores in France gives growth opportunity, group net debt of £724 million remains within management’s comfort zone, while the shares, and excluding regular special dividends which have previously been paid, offer a forecast dividend yield of over 2%.  

For now, and while some caution appears sensible, a strong focus on consumer value is attractive right now, which continues to support the investment case.

Positives: 

• Diversified product range
• Both UK and French store outlets

Negatives:

• Uncertain economic outlook  
• Exposure to currency movements 

The average rating of stock market analysts:

Strong hold