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Investors have – unfortunately – got used to seeing the B&M European Value Retail (LSE:BME) share price falling when the company reports its results. And today (15 July) feels like more of the same.
The FTSE 250 company’s Q1 report was much more positive than some of its recent updates. But that’s not saying much and the stock fell another 13% as a result at one point, although it’s down ‘only’ 9% as I write.
Better… but not good
Overall sales grew 4.4% in the 13 weeks between from April to June. That looks OK – but there are causes for concern beneath the surface.
While sales have been moving higher, the problem is that this has been entirely due to the firm opening more stores. And there’s only so long it can keep doing this.
B&M’s UK business (which makes up 80% of sales) has been the biggest problem. A year ago, like-for-like sales (which adjusts for changes in store count) were down 3.5% from the year before.
In this year’s Q1 update, like-for-like sales growth reached 1.3%. That’s obviously much better than a loss, but it’s a long way from being impressive.
That kind of growth implies like-for-like sales are growing slower than inflation, which is bad. And management also highlighted pressure on margins from lower selling prices.
Like-for-like sales growth in France was even weaker at 1.1%. And the less said about Heron Foods (where overall revenues fell despite a higher store count) the better.
Where do we go from here?
Before today’s report, I actually had quite high hopes for B&M. I don’t own the stock, but I’ve been watching it fall over the past few quarters as like-for-like sales have faltered consistently.
Last year’s poor results meant the firm had an unusually low basis for comparison with the latest sales figures. But 1.3% growth means revenues per store are still below where they were in 2023.
I also expected the firm to benefit from the unusually warm UK weather. And in fairness, there is some evidence of that, with the report highlighting strong sales in General Merchandise.
That, however, was more than offset by lower average selling prices and that means the overall result is very disappointing. It raises the question of where B&M goes from here.
New CEO Tjeerd Jegen didn’t have a huge amount to say on the subject. Taking time to get familiar with the business from the inside is defensible, but results need to start improving sooner or later.
The latest decline in the share price pushes the dividend yield above 6% and it’s well-covered by free cash flows after a reduction last year. But I think income investors probably have better options available elsewhere.
Too cheap to ignore?
The B&M share price has now halved over the last five years. But new store openings mean the company’s revenues have been climbing consistently during that period.
Investors are – correctly, in my view – focusing on like-for-like sales growth. And the latest report does show some signs of genuine improvement on this front.
It’s a step in the right direction, but I think it’s a small one. So I’m going to focus on other opportunities – including a different FTSE 250 retailer – while I wait and see what the new CEO can do.
