UK-based discounter B&M European Value Retail posted a 12.3% increase in group revenues in the first half of its financial year, to £1.76 billion (€2.06 billion), however the group's German operation, Jawoll, continues to weigh on the business.
Commenting on its performance, Simon Arora, chief executive, said, "Our existing stores performed consistently well through the last two quarters, generating half year LFL of 3.7%. [...] The core business has made a solid start to the second half of the financial year."
Here's how leading retail analysts saw it:
Russ Mould, AJ Bell
“Retailing is a hard business and it requires flawless execution. There is no room for error given intense competition. Very few companies can deliver positive results on a consistent basis and B&M is the latest to trip up.
“It may be pleased with 3.7% like-for-like sales growth in its UK operations but domestic news has been overshadowed by overseas woes. German operations aren’t going as planned with this part of the company now under strategic review. It goes to show that having a low price point does not equate to guaranteed earnings success.
“B&M seems to have made a mess of its German business called Jawoll. It looks like poor management decisions with product availability issues, late arrival to stores of seasonal stock and huge markdowns to clear old stock. There have also been large costs incurred on third party warehousing and logistics.
“This looks like a business which has taken its eye off the ball and today’s sharp share price decline is investors’ way of expressing dismay with the performance.
"The group’s priority is to learn from what’s gone wrong in Germany and make sure neither the French nor UK operations make the same mistakes."
Hannah Richards, GlobalData
"B&M increased its UK LFL sales +3.7%, while also managing to increase its cash margin by +4.0%. B&M’s growth was fuelled by store expansion, in addition to increased footfall and average transaction value, both of which it said occurred in its high street, and its out of town locations.
"B&M’s European divisions saw contrasting results between its German business Jawoll and French retailer Babou. The former continues to struggle, and despite revenue growth of 3.2%, a surge in operating costs (an increase of 37.5% to £50m), additional markdown activity and lower gross margins has led the group to conduct a strategic review of the business with its future uncertain. As a result of disappointing performance, the group has fully impaired the carrying value of the brand and its property, resulting in a £60m non cash impairment charge.
"Unsurprisingly, concerns around the German business have impacted share price. The group remains optimistic about its French acquisition, with the first three trial stores trading under the B&M banner in H1, and a further store opening since. With the necessary clearance of existing stock, the group plans to revamp its product offer by significantly reducing its clothing range and focusing on other product categories.''
Liberum Capital
"H1 adj. EBITDA of £139 million (pre-IFRS 16) (+5.7% y/y) compares to consensus of £147 million. UK strong as expected and management notes Q3 so far has continued the solid LFLs performance and it is well-placed heading into peak. Germany is the disappointment. We expected a low to mid-single digit loss, but EBITDA was a £12.2m loss. Management has recognised a c.£60m impairment and a strategic review is now underway.
"On the plus side, internationally, Babou posted a slight profit, although there is a long way to go for this business to become a material profit contributor. Overall, we expect consensus FY20E EBITDA forecasts to reduce by c.5%.
"The larger UK grocers made the headlines with their comments around the potential for products shortages should a no deal Brexit occur. We believe B&M is low risk in this regard. Firstly, its offer contains no material fresh or chilled (shorter-lead time) product vs. the supermarkets.
"Secondly, we understand from our previous discussions with management that 90% of the group's imported goods for peak trading were due to be in the UK by the end of October leaving it well-placed heading into November and December. Thirdly, B&M has Authorised Economic Operator Status, bringing the benefits of smoother customer operations should there be disruption.
"Overall, with good availability and an easier comparative period in the prior year, we think there is a good opportunity for B&M in Q3."
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
