The B&M European Value Retail SA (LSE:BME) share price is moving higher after its latest results on Thursday (14 November). But the report itself was… mixed.
The company’s update included a 3.7% increase in overall revenues, operating profits down 2%, and 20 more stores during the three months ending in September 2024. However, the key metric was like-for-like sales.
Comparable sales
Like-for-like revenue growth is important for any retailer. According to B&M’s website, every 1% increase in this metric is the equivalent of opening seven new stores – but without the costs.
In its July update, the firm reported a 5% drop in like-for-like sales, for which management blamed unusually bad summer weather. The latest report shows the decline continuing, albeit at a slower rate.
Today’s update revealed a 1.9% drop in like-for like sales, which is a clear improvement on the previous report. But while that’s a step in the right direction, ultimately it’s still a decline.
The company’s ability to generate higher revenues from its existing stores is so important. After July’s disappointment on this front, the latest result is somehow both encouraging and concerning.
Negative catalysts
In September, JP Morgan added B&M to its ‘negative catalyst watch’ list. And it’s fair to say there are some clear short-term risks with the stock.
Most notably, cost-of-living pressures in the UK have been starting to ease. Inflation has fallen from 4% at the start of the year to 1.7% in September.
That should help alleviate some of the pressure on margins. But in an industry with no real switching costs, it creates less incentive for consumers to stick to discount retailers.
These concerns have attracted a non-trivial short interest of 3.25% in B&M. So there was a lot at stake going into the latest update.
Where are we now?
The latest earnings report indicates that things are moving in the right direction after the July update. And the stock is responding accordingly.
I have B&M on my list of FTSE 100 shares to keep a close eye on. Even after the latest move, I think there could well be good value here, especially with the firm readying its inventory for a strong end to 2024.
The company thinks it still has scope to increase its UK store count, as well as expanding in France. If it can do this, I would expect further growth ahead.
While things are still challenging, a price-to-earnings (P/E) multiple of around 11 doesn’t seem excessively demanding. And a dividend yield close to 4% is also attractive.
The key metric
While B&M thinks it has plenty of room to increase its store count, it won’t be able to do this indefinitely. And even though its new outlets have a very fast payback period, they still increase costs.
That’s why like-for-like sales growth is so important. Yes, the latest earnings report presents a mixed picture, but I still think the stock is cheap enough to be worth considering.
