31st May 2023 15:48
(Alliance News) - Despite reporting lower-than-expected annual profit on Wednesday, analysts at Shore Capital said that B&M European Value Retail SA's results were "encouraging", considering the current macro environment.
The Luxembourg-based variety goods value retailer posted a pretax profit of GBP436 million in the year ended March 25. This was down 17% from GBP525 million the previous and below Barclays' forecast of GBP454 million.
Group adjusted earnings before interest, tax, depreciation and amortisation fell 7.4% to GBP573 million from GBP619 million the year before.
Russ Mould, investment director at AJ Bell, explained that B&M benefited as one of a "handful" of retailers which were able to stay open and operate during Covid. Consequently, Mould said B&M's performance during this period "comes with an asterisk attached". This, he argued, is why investors will be "particularly pleased" to see its "value credentials paying off" in a "more normal" retail environment.
Shares in B&M jumped 7.8% to 508.80 pence on Wednesday afternoon in London. Over the past 12 months, the stock is up 30%.
B&M reported revenue of GBP4.98 billion for the year, up 6.6% from GBP4.67 billion the year before and in line with Barclays' estimates.
The company said the rise in revenue was due to positive like-for-like in all businesses, which includes inflation and mix effects, and by strong trading from new stores.
"With inflation still biting hard, shoppers are desperately searching for ways to save money wherever they can and B&M is benefitting from this focus on frugality," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
"It's reputation as a discounter has served it well as consumers have scouted around for cheaper prices on food, homewares and garden furniture. Its large footprint in easy-to-access retail parks where parking is usually free has also been a bonus.
"It's managing to tread the tricky tightrope of keeping prices competitive while still leaving a sturdy slice of revenues for the bottom line."
Looking ahead, B&M said it expects to grow sales and profits in financial 2024, despite economic uncertainty.
Orwa Mohamad, an analyst at Third Bridge, argued that if B&M is to retain customers in the future it will "need to do more than simply offering cheap and cheerful grocery options."
"Our experts say B&M is going to have to allocate more resources to enhance their food and fresh produce offering in order to encourage customers to make B&M their primary and consistent shopping destination. To improve profit margins, B&M should also focus on offering more essential non-food items and reduce their exposure to discretionary products," the Third Bridge analyst said.
By Heather Rydings, Alliance News senior economics reporter
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