31st May 2022 12:36
(Alliance News) - Budget variety store chain B&M European Value Retail saw its shares sink on Tuesday with a worrying outlook spooking investors, as it also announced Chief Executive Simon Arora's replacement.
B&M shares were down 13% at 400.70 pence each on Tuesday in London, making it the worst performer in the FTSE 100, and has slumped 37% so far in 2022.
Russell Pointon, director of Consumer at Edison Group said: "This is a difficult set of results for B&M, which has seen its group revenue decrease by 2.7% and its UK revenue fall 4.1%, caused by a like-for-like revenue decline of 9%."
AJ Bell investment director Russ Mould added: "When households feel the pinch one of the obvious things they can do is trade down to cheaper options and this should play into the hands of variety discount store B&M.
"However, the company is simultaneously losing the tailwind it had during the pandemic when it was in a select grouping of shops which were able to remain open. And its value-based proposition means margins are pretty skinny and therefore vulnerable to inflation."
For the 52 weeks ended on March 26, pretax profit was stable at GBP525 million, while revenue slipped to GBP4.67 billion from GBP4.80 billion the year prior.
Ross Hindle, analyst at Third Bridge, said: "Our experts believe B&M has the ability to pass on inflation costs to its customers without compromising on its price gaps with key competitors. It will also consider other creative alternatives such as re-engineering certain products and shrink-flation.
"Compared with category specialists, B&M is nimble enough to change product offerings where it can’t make an item work at a particular price point. Our experts expect a mix shift towards grocery and away from general merchandise, which will ultimately hurt margins, a trend which goes against what we have seen in current earnings."
B&M declared a final dividend of 11.5 pence, falling from the 13.0p final payout offered last year. The total dividend was cut to 16.5p from 17.3p.
Looking ahead, the company expects the growth prospects both in the UK and in France to be "highly attractive". It also expects to open at least 950 B&M UK stores, rising from its current total of 701, and targets continued expansion of its Heron Foods convenience store chain.
The company noted: "Notwithstanding the many and varied uncertainties and headwinds which are likely to impact on our trading performance during [the next financial year], at this early stage in the year group adjusted Ebitda is expected to be in the range of GBP550 million to GBP600 million, significantly ahead of the [financial 2020] pre-pandemic level of GBP342 million."
Adjusted Ebitda in financial 2022 came in at GBP619 million.
Mould added: "Longer term there looks a decent chance B&M can emerge from the current cost of living crisis in better shape than it entered it. The company enjoys the kind of scale, allied with a strong balance sheet, which should help see it through tough times and come out the other side with its market position bolstered."
Edison's Pointon said this outlook is "mixed".
"Following the recently announced departure of the group's chief executive and his family's 4% reduction of their shareholdings, investors have been hoping that these sets of results will demonstrate that the group can continue to deliver sustainable growth going forward," he continued. "The group's continued growth in international markets, such as France which saw a 14% increase in group revenue, may offer a small sign of what investors are hoping for."
"However, if the group is to sustain the step up in sales compared to pre-pandemic levels, it must find new ways to provide competitive prices for its customers. Amidst rising inflation, B&M's may be able to benefit from customers looking for lower-priced alternatives as they tighten their budgets."
On top of its results on Tuesday, B&M also announced it has promoted its current chief financial officer to replace the departing Chief Executive Simon Arora.
The Luxembourg-headquartered variety goods value retailer said the appointment of Alex Russo as its new chief executive officer reflected the outcome of a "thorough assessment and external benchmarking process over the last six weeks."
"The board will now consider the most appropriate handover plan. A process to recruit a successor to Alex as CFO has already begun. In the meantime, both Simon and Alex will remain in their existing roles in order to minimise disruption to the business. A further announcement will be made when appropriate," B&M added.
AJ Bell's Mould said: "The company hasn't wasted any time in appointing the retiring Arora's successor, though with Russo stepping up from the chief financial officer position it is not the most imaginative choice. While a fresh injection of ideas to the business might have been welcome, ultimately Arora has taken B&M from a struggling Blackpool grocery chain to a leading UK chain in the ranks of the FTSE 100 so maintaining some continuity has logic to it."
Outgoing CEO Arora said: "The retail industry is facing inflationary pressures whilst our customers are having to cope with a significant increase in the cost of living, making spending behaviour in the year ahead difficult to predict. However, we have seen before that during such times customers will increasingly seek out value for money, and B&M is ideally placed to serve those needs."
By Paul McGowan; [email protected]
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