The metric that we will be looking closely at is like-for-like sales growth, which is a measure of comparable sales growth for stores that have been opened for more than a year. It is a particularly useful measure because it strips away the effects of opening new stores or acquisitions, allowing us to see underlying sales trends.
B&M
Like-for-like sales growth for B&M (LSE: BME) slowed to just 1.1% in the 13 weeks to June 27 2015, from 6.0% last year. The company blamed weak comparable sales on unexpected cold weather conditions in the UK, which hurt sales of outdoor seasonal products.
But slowing like-for-like sales is part of an ongoing trend. This is actually the third consecutive quarter that like-for-like sales has slowed for the discount retailer. Like-for-like sales already slowed to 3.4 per cent year-on-year in the previous quarter, from 4.5% in the quarter leading to end of 2014.
Despite slowing comparable sales growth, the company continued to accelerate new store openings, having opened 25 net new stores over the last 13 weeks. Total group sales on a constant currency basis rose 25.3% in the quarter, which compares to 31.9% in the same period last year.
With 450 stores in the UK, management remains committed to its UK store target of 850 stores. It is also confident its strategy of rapid expansion continues to be highly profitable, and that it will meet its year-end earnings estimates. “The performance of new UK openings over the quarter has been strong with a good number of recent openings now being top quartile performers in the Group”, it said in today’s announcement.
Even as disposable incomes steadily rise, the trend of consumers becoming more price conscious is unlikely to go away. But, with growth undoubtedly slowing, B&M’s forward P/E of 27.7 seems increasingly less attractive.
Tesco
Tesco (LSE: TSCO) is seeing its sales figures perform even more badly. Like-for-like sales fell 1.3% in the 13 weeks to May 30. Like-for-like volumes actually rose 1.4% over the period as more customers visited its stores, but that was more than offset by what management describes as “price investments” (meaning price cuts).
But, at least like-for-like sales momentum is beginning to turnaround. In the previous quarter, which included the Christmas period, like-for-like sales fell 1.8%; and for the same quarter last year, like-for-like sales decline 3.4%.
A bottoming in its sales figures may not yet be in sight; but at least, Tesco is beginning to move in the right direction. Unfortunately, its valuation on earnings is unappealing. Its shares trade with a forward P/E of 23.7, based on analysts expectation that underlying EPS will to fall by another 7% this year, to 8.8 pence.
Poundland
Poundland (LSE: PLND), on the other hand, is seeing like-for-like sales growth pick up. It does not report comparable sales growth on a quarterly basis; but like-for-like sales accelerated to 2.4% in the year ending 29 March, up from 1.9% in the preceding year.
Although these figures are a far cry from the double-digit like-for-like sales growth rates seen only a few years ago, growth is accelerating again. Analysts expect underlying EPS will rise 8% to 14.7 pence this year, which gives its shares a forward P/E of 22.8. But, if regulators approve the merger with 99p Stores, Poundland should be able to deliver even faster earnings growth in the following years.
In conclusion, out of the three shares mentioned, Poundland seems to be the best pick.
