- Full year 2024 earnings at top end of guidance
- Q4 like-for-like growth decelerates
- Has the UK estate matured?
Bargain stores giant B&M European Value Retail (BME) said it expects profits for the year ended 30 March 2024 will be at the ‘top end’ of previous guidance as the cash-generative discounter hailed a year of ‘strong operational execution’.
Yet shares in the variety goods value retailer softened 2% to 502p as investors focused on pedestrian-looking fourth quarter UK sales growth.
This suggests B&M is finding it harder to keep churning out the success that has made it one of the retail sector’s big winners of the past decade.
TOP END OF GUIDANCE
In a post-close trading update, B&M said adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) for the financial year just-ended will be £629 million.
That’s at the top end of the FTSE 100 retailer’s previous £620 million to £630 million guidance range and implies a 9.8% year-on-year increase.
B&M delivered a robust 10.1% rise in group revenues to £5.5 billion for full year 2024, underpinned by volume growth and positive like-for-like sales.
GROWTH RATE DISAPPOINTS
However, like-for-like sales growth in the core B&M UK business decelerated from 3.7% in the full year to 2.9% in the fourth quarter, despite what B&M described as a ‘strong’ volume performance across both FMCG (fast moving consumer goods) and general merchandise and a boost from an early Easter.
Elsewhere, B&M’s convenience store chain Heron Foods generated a 15.3% surge in sales to £560 million for the year, whilst B&M France reported a 19.2% revenue jump to £514 million.
One of Shares’ key picks for 2024, B&M opened 47 new UK stores last year, two ahead of previous guidance.
Management noted the new openings are trading well, including the Wilko units acquired last year, which are performing ahead of expectations.
In other good news, strong operating cash generation resulted in a comfortable net debt to adjusted EBITDA ratio beneath 1.2 times, even after the payment of a £201 million special dividend in February 2024.
EXPERT VIEWS
Liberum Capital said this was a ‘very strong outturn, which contrasts very positively to much of the reporting we are seeing across the rest of the sector. The predictability of B&M’s model is driven by market share gains from a “cookie-cutter” store roll-out and its disruptive, value-focused offer. Today’s update ticks all the right boxes, giving us confidence in the runway for long-term compounding growth.’
In contrast, Shore Capital’s Clive Black commented: ‘Overall exit trade for full year 2024 is modest to us, which raises questions about competitiveness in FMCG, the scope to absorb higher operating expenses, and ultimately, whether the estate, which has clearly been through its most potent period, is now in a more mature, and so cash compounding phase.’
AJ Bell head of financial analysis Danni Hewson added: ‘The demise of Wilko should have benefitted B&M over the past six months as a key competitor was removed from the market. The jury is still out as recent performance has been disappointing.
‘On one hand, guidance for adjusted earnings to come in at the top end of previous guidance is vindication that B&M’s strategy plays well to an uncertain economic backdrop. However, B&M’s performance is not quite as solid as you might think. Had it been a “normal” Easter date, it seems as if B&M’s trading update might not have been so bullish.’
Hewson continued: ‘While the company continues to find ways to expand its store estate and plant flags in more territories, the competition is heating up with many other retailers and grocers offering more value-priced products with great success.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor () own shares in AJ Bell.
