Budget retailer B&M has recently issued a profit warning, citing declining UK sales and increasing operational costs as key factors. The company reported a 1.1% drop in like-for-like sales in the second quarter and anticipates a significant drop in half-year underlying earnings.
B&M’s Financial Challenges
The projected earnings for the half-year are expected to plummet by 28% to around £198 million. This downturn is a result of escalating wage costs, which surged by £30 million in the first half of the fiscal year ending September 27. Additionally, a £14 million packaging tax has been introduced due to new Extended Producer Responsibility regulations.
Future Earnings Outlook
B&M now expects its full-year underlying earnings to range between £510 million and £560 million, indicating a potential decline of 18% compared to the previous year. B&M aims to implement “decisive actions” to enhance its performance, though it acknowledges that these changes may take up to 18 months to take full effect.
- First-half wage cost increase: £30 million
- Packaging tax impact: £14 million
- Projected half-year earnings: £198 million
- Full-year earnings forecast: £510 million to £560 million
Strategic Response
Chief Executive Tjeerd Jegen, who took over in June, has emphasized the need for a comprehensive review of the company’s operations. He pointed out that while B&M’s value proposition remains strong, the execution has been lacking, affecting the company’s trading performance.
Turnaround Measures
To address the challenges, B&M plans to implement several strategies, including:
- Reducing prices on key value items
- Introducing more flexible promotion strategies, termed “managers specials”
- Refocusing and reducing the number of product ranges
- Improving the availability of popular products in stores
Despite recent improvements in UK sales since the second quarter, B&M expects trading to remain variable over the final six months. The anticipated sales performance could range from a slight decline to modest growth.
B&M’s Store Presence
B&M operates 786 stores in the UK under the B&M brand and 344 stores under Heron Foods and B&M Express. Furthermore, the retailer has 140 stores located in France, expanding its reach beyond the UK marketplace.
