- Underlying UK sales lag forecasts
- French arm and convenience stores performing well
- ‘Golden Quarter’ sees UK sales perk up
Variety goods value retailer B&M European Value (BME) disappointed the market with its interim results update, with underlying UK sales and margins down on last year and below expectations.
B&M shares dropped to the bottom of the mid-cap performance table, losing 6% to 352p.
WHY DID THE RESULTS DISAPPOINT?
On a headline basis the firm posted a 1.8% increase in sales to £2.3 billion for the six months to 24 September, with a step-up from -2.3% growth in the first quarter to 6.3% growth in the second quarter.
However, the headline increase was driven by new store openings, with UK like-for-like revenues down 3.9% during the half although there was a notable improvement from -9.1% growth in the first quarter to +2% in the second quarter.
During the first half, the group opened 10 new B&M stores in the UK, four B&M stores in France and seven Heron Foods convenience stores in the UK.
Compounding the lower-than-forecast increase in underlying sales, a drop in the gross margin due to more markdowns pushed UK EBITDA (earnings before interest, tax, depreciation and amortization) down from £258 million to £200 million and group EBITDA down from £282 million to £232 million.
WAS THERE ANY GOOD NEWS?
There was better news from B&M’s French operations which posted an 18% increase in sales to £184 million and a 55% jump EBITDA to £18 million during the first half.
New chief executive Alex Russo sees great long-term growth potential in France through new store openings. The firm currently has 111 stores against around 700 in the UK while both countries have similar-sized populations.
There was also good news from B&M’s Heron Foods business which posted a 15% increase in first-half sales to £233 million and a small increase in EBITDA.
During tough times consumers seek out value offerings and stores with limited ranges to help manage their budgets which plays directly to Heron Foods’ strength.
Group cash flow increased significantly during the half from £201 million to £370 million as a result of stock reductions and inventory controls, giving the firm plenty of firepower to continue investing while still returning surplus cash to shareholders.
Russo said the first six weeks of the so-called Golden Quarter had seen ‘good momentum’ with B&M UK like-for-like sales up 2.5% and strong sell-through in non-grocery categories.
He also confirmed previous chief executive Simon Aurora’s full year EBITDA guidance of £550 million to £600 million.
