A fresh plunge in Barratt shares has attracted plenty of investor attention on Tuesday (15 July). But it’s not the only FTSE 350 share sinking right now — B&M European Value Retail (LSE:BME) shares have also plummeted, reflecting a chilly trading update of its own.
At 235.8p per share, the B&M share price was last trading 8.5% lower. It touched all-time lows of 221.4p earlier in the session.
The share hasn’t been able to stem a tide of disappointing sales updates over the last 12-18 months. And while it’s avoided issuing a profit warning on this occasion, revenues continue to trail broker expectations.
But with new leadership now in position, is it time to consider buying cut-price B&M shares?
B&M’s sales disappoint
Looking on the bright side, like-for-like sales have flipped back into positive territory after recent declines, today’s update showed.
At B&M UK — a unit responsible for 80% of the company’s top line — like-for-like revenues rose 1.3% in the 13 weeks to 28 June. This was “driven by a good performance in April from our General Merchandise outdoor ranges assisted by drier weather and Easter timing“, the company said.
Yet B&M UK’s like-for-like sales growth was around half of what brokers had been predicting. And what’s more, growth needs to be viewed in the context of weak comparables a year earlier. Sales in the corresponding 2024 quarter dropped 5% (or 3.5%, stripping out the Easter timing effect).
Margin pressures raise turnaround concerns
B&M’s trading update has left investors fearing how bad sales would have been had it not been for the recent heatwave.
More specifically, it’s raised questions over the company’s turnaround strategy for its fast-moving consumer goods (FMCG) lines, where like-for-like sales at B&M UK were negative last quarter.
General Merchandise sales were up on both a like-for-like and headline basis. However, average selling prices (ASP) for its garden, toys, and DIY lines endured further deflation, pushing gross margins lower year-on-year for some products.
A risk too far?
B&M’s first quarter has been a tough one for new chief executive Tjeerd Jegen, who arrived last month.
In theory, value retailers like this should be thriving when consumers feel the pinch. But companies across the discount segment are suffering amid the enduring cost-of-living crisis. So far, B&M doesn’t seem to have got a handle on how to turn things around. The lack of an online channel in what’s a highly competitive marketplace may also be hampering its progress.
The company’s maintained earnings forecasts for the full year despite its disappointing Q1. Adjusted EBITDA is tipped at £569m-£646m, compared with £620m last year. I fear a fresh downgrade is only a matter of time, though, and that the retailer’s troubles could endure.
Investors will be hoping new CEO Jegen will start pulling rabbits out of hats soon. Previous leadership positions at heavyweight retailers like Tesco may help him conjure up the necessary magic to reinvigorate sales.
But I can’t help but feel the risks of investing here remain too high. On balance, investors should consider targeting other UK shares, in my opinion.
