B&M European Value shares were lower on Wednesday after the discount retailer announced preliminary results that highlighted the impact of increased competition and rising finance costs.
Although group revenue increased 3.7%, the higher sales were a result of new store openings as opposed to shoppers boosting their spend. B&M UK like-for-like sales dropped 3.1%.
This will be a concern for B&M investors given that the discounter relies heavily on volume and the company says its long term growth strategy is based around like-for-like growth in the UK.
B&M pointed to disappointing FMCG sales and the timing of Easter as a key factor behind falling sales.
The company relies heavily on lower-income groups to support sales, and this customer base, unfortunately, is feeling the hit from the cost-of-living crisis the most.
Group profit before tax fell 13% to £431m as higher interest and finance costs weighed on profitability.
B&M shares were down 6% at the time of writing.
Adam Vettese, market analyst for eToro, summarises the issues facing B&M perfectly:
“B&M is continuing to feel the pressure of the tougher consumer environment, as profits have dipped by a little over 13%, accompanied by a negative like-for-like sales trend of -3.6%. B&M offers consumers familiar brands at low prices but now also face stiff competition from other discounters, with multiple retailers competing hard for less disposable income out there under current macroeconomic conditions.
“The company can show revenue numbers which are growing, but this is coming primarily from stores that have just opened, which will get that initial surge in sales as shoppers flock to see what’s new in their area. This in itself can be papering over the cracks of the wider issues of margins, and profit coming under more pressure.
“Shares have been on a downward trajectory since the beginning of last year and are worth a little over half of what they were then. B&M may need to see consistency come back into their store network as a whole to convince investors of a turn around.”