Market buzz around B&M European Value Retail (LSE:BME) has fallen since its share price struck a record, closing highs of 609p last month. Now at 565p, the FTSE 100 share is trading at a 7% discount to those levels.
Investor interest in more ‘recession-resistant’ stocks like this has faded as hopes of interest rate cuts in early 2024 have grown. The theory goes that demand for discount retailers like this will decline as people have more money in their pockets.
I’m not so sure though. In fact I’m considering buying B&M shares for my portfolio following recent share price weakness. And exceptional trading numbers on Tuesday have boosted my bullishness on the company.
Strong sales growth
Today the company provided yet another strong statement in which it celebrated “strong profitable growth” for the ‘Golden Quarter’ (comprising the Christmas holiday season).
Thanks to solid transaction volumes, B&M said group sales rose 5% between 24 September and 23 December, to £1.6bn. Sales at its core B&M UK division increased 3.7% to £1.4bn, while on a like-for-like basis revenues were up 1.2%.
Sales across its B&M France and Heron Foods banners also continued to rise strongly in the period, up 11.3% and 11.7% respectively.
B&M kept its full-year guidance unchanged as a result. It expects to record group EBITDA of £620m-£630m, up from £573m the year before.
The retailer also announced the payment of a 20p per share special dividend, in line with its capital allocation policy.
Upgraded forecasts maintained
Today’s update indicates that sales growth has cooled from the first half of B&M’s fiscal year. But that third-quarter result is still impressive given the exceptional comparatives of a year earlier (group sales rose 12.3% in 2022’s Golden Quarter).
Indeed, the decision to maintain its earnings forecasts (which were upgraded in November) is an indication of the firm’s continued strength.
B&M could continue to perform strongly too as consumer spending remains under the cosh.
Chief executive of the British Retail Consortium Helen Dickinson warned on Tuesday that “2024 looks to be another challenging year for retailers and their customers, and spending will continue to be constrained by high living costs.”
Having said that, Barclays data out today showed the broader discount segment struggling in December. Sales dropped 10.2% last month, possibly reflecting price slashing by the rest of the retail sector. It suggests that B&M can’t afford to rest on its laurels.
A top FTSE 100 buy
Analyst Neil Shah of Edison certainly expects B&M to continue making strong progress. He comments that
[its] ability to navigate economic uncertainties and focus on its everyday low-price approach positions it well for future success, emphasising a strong outlook and strategic execution.
The growth of value retail isn’t just a recent phenomenon. In fact, this segment has been growing rapidly since the 2008 financial crisis. And as the FTSE firm rapidly expands — the firm has vowed to open “not less than 45 B&M UK stores in each of the next two financial years” — I’m expecting sales and profits to grow strongly long after the cost-of-living crisis ends.
I think B&M shares could be a great potential buy for long-term investors to consider.
