Annual profits tumble at B&M

(Sharecast News) - Shares in B&M European Value Retail surged on Wednesday, after the retailer posted a smaller-than-expected slide in annual profits, despite being hit hard by weaker sales in the UK and soaring costs.

Group revenues at the discount retailer improved 3.6% in the year to 28 March, at £5.78bn, supported by a 2.9% uplift in like-for-like sales in B&M France.

However, in the UK, like-for-like sales softened 0.1%, while Heron Foods saw revenues decline 0.3%.

Group operating costs also rose sharply, up 11.7% at £1.65bn. B&M said it had been hit by increases to the minimum wage, higher employer National Insurance contributions and the recycling levy alongside growth in the retail estate.

As a result, adjusted pre-tax profits fell 38% to £284m.

The slump was not, however, as steep as feared, with consensus closer to £274m, and by 1100 BST, the FTSE 250 stock had put on 16% at 197.6p.

Chief executive Tjeerd Jegen acknowledged it had been "a difficult year that saw profits fall due to a challenging market and execution issues".

But he struck a more optimistic tone looking forward: "The past six months have seen us sharpen our pricing, improve on-shelf availability in best-selling brands and revamp our in-store promotions. We cleared discontinued lines well in the fourth quarter, and are now embarking on a SKU (stock keeping units) count reductions across all our fast-moving consumer goods categories."

Jegen - who joined a year ago - is seeking to turn the business around after a difficult period and return the UK to like-for-like sales growth through the Back to B&M Basics strategy, which he launched in October.

Looking to the current trading, and B&M said that while the garden season had experienced a slower start year-on-year, warmer weather in late May had driven a recovery in sales of seasonal categories.

It also flagged upward pressures on international freight, fuel and energy costs due to war in the Middle East.

But Jegen insisted he was "confident that we have sufficient levers to offset this impact with cost mitigation. Over time, these benefits will flow through to our bottom line once we have returned B&M like-for-like sale to growth.

"In the medium term, we continue to see no reason why B&M UK cannot return to double-digit EBITDA margins."

The company also announced it would use adjusted pre-tax profit for guidance going forward rather than EBITDA, bringing it in line with UK industry peers.

Russ Mould, investment director at AJ Bell, said: "Expectations were so low for B&M after a string of profit warnings that they may as well have been underground; a set of results with a hint of encouragement was enough to fire the share price higher. Profit and earnings plunged as costs soared, but there was nothing new in the numbers to spook investors.

"While the consumer environment is unhelpful in some respected, B&M's value credentials should be prized at a time when household finances are under pressure."

Susannah Streeter, chief investment strategist at Wealth Club, said: "While adjusted pre-tax profits falling 38% could not be dressed up as anything but disappointing, investors had been pre-warned. So the focus was on the turnaround plan and there are signs that it's already started gaining traction.

"There are hopes that B&M has reached the nadir of poor performance and that its product line revamps and tighter cost controls, alongside its locations in popular retail parks will mean there will be more progress."

David Hughes, equity research analyst at Shore Capital, said he was "pleased to see" results in line with recent guidance, and welcomed B&M's decision to change its guidance metric.

However, he added: "The question is where does B&M go from here, in terms of returning to like-for-like growth and repairing margins, and with no guidance yet give for the 2027 full year, it seems the outlook remains uncertain."

See latest RNS on Investegate

B&M