Annual profits more than doubled at general merchandise discounter B&M European Value Retail (BME) as pandemic stockpiling boosted sales.
Yet the shares cheapened 2.4% to 547.6p on Thursday as the variety goods retailer reported a 1% like-for-like sales decline for the core B&M UK business, now knocking up against testing Covid comparatives, in the opening nine weeks of the new financial year.
This news provided the catalyst for profit-taking following a storming run that saw B&M promoted to the FTSE 100 last year.
HARD ACT TO FOLLOW
Designated an ‘essential retailer’ thanks to its groceries offering, B&M was able to trade though the lockdowns when most brick and mortar rivals, other than the supermarkets, were shuttered. This enabled the discounter to bag market share and set a very hard act to follow for 2021.
Like-for-like sales in the core UK business in the first nine weeks are slightly lower against last year’s Covid-inflated comparatives and are expected to show a decline this year.
B&M also warned trading ‘continues to be volatile at a weekly and product category level, in particular since the recent easing of lockdown restrictions’, adding this is ‘likely to remain the case for the whole of FY22, as the business annualises against the very strong comparatives throughout last year’.
WINNING PROPOSITION
Though demanding comparatives represent a headwind, B&M’s results for the year to 27 March 2021 showed the strength of its discount, general merchandise offer and predominantly retail park sites, which left it primed to benefit during the lockdowns.
Pre-tax profit increased 108.5% to £525.4 million on group revenue up the best part of 26% to £4.8 billion.
Income seekers were delighted by a 140.7% hike in the final dividend to 13p, bringing the full year ordinary dividend to 17.3p (2020: 8.1p), on top of the £450 million of special dividends paid out last year.
Numis Securities downgraded its full year 2022 adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) forecast from £520 million to £510 million to reflect the pull-forward of seasonal sales into 2021, although the broker reiterated its ‘buy’ rating and raised its price target from 660p to 685p to reflect B&M’s better than forecast net debt position.
AJ Bell financial analyst Danni Hewson said that while some level of drop off is only to be expected, shareholders will be ‘crossing their fingers’ that B&M can hold on to ‘at least a decent chunk of the new customers it won in 2020.
‘This means it needs to get the basics of retail absolutely spot on, ensuring stores remain attractive, clean and safe destinations with the products they want at attractive price points.
‘One benefit the company enjoys is that a lot of its sites are in retail parks with ample parking, which might suit consumers nervous of public transport and more reluctant to frequent a busy high street as we emerge from Covid.
‘The company is continuing with an ambitious rollout of new stores and it sounds like it will remain on the lookout for any opportunities that arise as peers who were harder hit in the last 12 months exit the market.’
