- CEO sees ‘many years’ of profitable growth ahead
- EBITDA expected to be higher this year
- Retailer’s cash generation remains strong
B&M European Value Retail (BME) reported a near-13% drop in pre-tax profits for the year to 25 March 2023 as trading patterns normalised post-pandemic and ‘material cost pressures’ crimped the FTSE 100 group’s margins.
However, the variety goods value retailer said it now expects earnings before interest, tax, depreciation and amortisation (EBITDA) for the new financial year, which it entered with ‘excellent profitable momentum’, to be higher than last year.
This news sent shares in B&M up 6.3% to 501.4p.
LASER-FOCUSED ON VALUE
Group revenues rose 6.6% to the best part of £5 billion last year and were 30.7% up on the pre-pandemic, full year 2020 level, as value-focused B&M continued to help cash-strapped shoppers navigate the cost-of-living crisis.
Adjusted EBITDA fell 7.4% year-on-year to £573 million, in line with consensus as trading normalised following the massive boost provided by Covid, which translated into a 12.6% drop in adjusted pre-tax profit to £459 million.
During the pandemic, B&M benefited as one of a handful of retailers able to stay open and operate.
Its performance during this period comes with an asterisk attached, which is why investors are pleased to see the retailer’s value credentials paying off in a more normal retail environment.
POSITIVE MOMENTUM
While tough comparatives meant the B&M UK fascia’s like-for-like growth was a subdued 0.7% last year, the fourth quarter like-for-like run rate of 3.2% indicates that the company ended the year with momentum.
The retailer also pointed out that B&M UK like-for-like customer transaction numbers have increased every month since June, demonstrating the widening appeal of the brand.
And following an encouraging first nine weeks of trading, with B&M UK like-for-like sales up 8.3% and the French business and convenience stores arm Heron Foods maintaining their positive momentum, B&M believes full year 2024 EBITDA will surpass last year’s result.
B&M generated £866 million of cash from operations last year, up from £589 million a year earlier, driven by stock reductions and inventory discipline.
This reduced net debt from £790 million to £724 million, allowing for an ordinary dividend of 14.6p, down from the prior year’s 16.5p but on top of the 20p special dividend paid in January this year.
WHAT DID THE CEO SAY?
Alejandro Russo, who recently succeeded long-serving Simon Arora as CEO, commented: ‘B&M has many years of profitable growth ahead, to be delivered through our four channels of growth (existing B&M UK stores, new B&M UK stores, France and Heron) and in delivering this growth, B&M will generate cash and compound earnings growth for our shareholders.
‘We are actively responding to the short-term pressure on consumers from the cost-of-living crisis, with a relentless focus on price and value.’
EXPERT VIEWS
‘This is a strong set of maiden prelims under the group’s new CEO/CFO combination,’ commented Liberum Capital.
‘Cash generation once again remains very impressive, reflecting the strength of the group’s value proposition and its lean and capital light operating model, and benefits from the improvement to store standards and availability implemented under the new team.’
AJ Bell investment director Russ Mould said: ‘In theory B&M should be well placed against a backdrop where households are really watching their pennies and that is largely reflected in this latest trading update. The company is also generating lots of cash which it can return to shareholders.’
But Mould added: ‘There is the odd warning sign here and there though, which the market may give some attention to. In particular, the company’s inventory position has increased a touch – hinting at a potential slowdown in non-food sales.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Tom Sieber) own shares in AJ Bell.
