How is retailer B&M (LON: BME) faring amid cost-of-living crisis?

In the wake of the cost-of-living crisis, people are rushing to stores that offer cheap products and big discounts. There are several popular budget stores in the UK, but among those leading the race is B&M European Value Retail S.A. (LON: BME), the British-Luxembourg variety goods value retailer.

During the COVID-19 pandemic, the business, which retails in items ranging from frozen foods to homewares, was among the most prominent corporate beneficiaries. This is because it was allowed to open during lockdowns and the shoppers switched their spending to retailers selling essentials.

While the situation is different at present, people have again switched to only buying essentials, this time due to the high inflation. Millions of Britons are exercising caution in spending and are cutting down on non-essential expenses.

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In the wake of such concerns, B&M European Value Retail S.A. warned last month that its profits might come down this year. It said that buyers are now moving to cheaper products, making it tough for the companies to predict their spending behaviour. According to the company, the impact of inflation on sales volumes is difficult to predict due to an uncertain macroeconomic outlook.

FY22 results of B&M

In the 52 weeks to 26 March 2022, B&M reported a decline of 2.7% in group revenues, to £4,673 million. However, during the pre-pandemic period of 2019-20 (FY20), on a two-year basis, the revenues saw an increase of 22.5%.

On the other hand, the adjusted EBITDA for the group fell by 1.2% to reach £619 million from £626 million in FY21. The statutory profit before tax remained almost flat at £525 million.

The company has also announced that its current CEO Simon Arora will retire and will be succeeded by Alex Russo, who is currently the CFO. The date of appointment is yet to be confirmed by the company.

Outlook

Consumers are moving away from more discretionary higher margin, categories like general merchandise in favour of Food and FMCG products. As a result, the company expects some levels of markdowns to return this year in terms of gross margin.

Due to the gross margin dilution, B&M UK estimates a fall of 70-130 bps in its adjusted EBITDA margin. However, it is likely to stay higher than the pre-pandemic levels. For FY23, B&M expects its group adjusted EBITDA to be in the range of £550 million to £600 million.

Share price performance of B&M

The current market capitalisation of B&M European Value Retail S.A. stands at £3,603.42 million. Its share price has slipped significantly over the past few months. In the last one month, as of 13 June 2022, the shares have fallen by over 25%. The FTSE 100 constituent's one-year return stands at -35.82% as of now. On a year-to-date basis, the share value has plunged by -45.09%.

B&M's shares were trading at GBX 349.10, down by 3% as of 11:36 am GMT+1 on 13 June 2022.