During lockdowns, the B&M European Value Retal (LSE: BME) share price soared, catapulting it into the big league of retailers and, with it, a place in the FTSE 100. But with the stock down 50% in a year it finds itself relegated back into the FTSE 250. After a disappointing FY25 set of results, was the stock just a flash-in-the-pan?
FY25 results
On the back of 70 new store openings in FY25, revenue grew 3.7% to £5.6bn. But beyond that, every other important financial metric came in lower. Earnings per share (EPS) declined 6.7%. Adjusted operating profit fell 1.8% to £591m. The stock is down over 10% as I write this piece on 4 June.
B&M joins a long list of retailers struggling to navigate the existing retail environment. But as a business very much targeting the value end of the spectrum, the extent of the slowdown is surprising in many respects. After all, in a cost of living crisis, one would expect value retailers to perform particularly well. This is evident with the likes of Aldi and Walmart. That said, Poundland has also struggled.
Strategy misfiring
The problem, to me, is strategy execution. Its ‘everyday low price’ strategy is the retailer’s core value proposition. But it recognises that the in-store experience has not been where it needs to be to.
Product ranging, in-store merchandising, and space allocation across key categories including cleaning, health & beauty and food have simply gone awry, in my opinion. Many may be struggling at the moment, but shoppers still expect a great in-store experience. Quality and value are not mutually exclusive these days.
Where it has performed better is in the General Merchandise division, which includes homewares, toys and electrical items. The implementation of a lower-price strategy led to increased volumes sold. But volume came at the price of sales value growth. Whether such a strategy is sustainable long term is questionable.
Growth mindset
As it expands its geographical footprint, there’s still a lot to like about the business. Over the past five years its opened 121 new stores in the UK and 34 in France. It has set a long-term target of reaching 1,200 stores across the UK.
It’s also investing heavily in improving distribution capacity. A new Ellesmere Port import centre is expected to open in late summer, which will help drive volume growth and network optimisation.
The underlying market trend toward discounters will undoubtedly accelerate in the years ahead. But at the same time the National Insurance hike, increased wage costs and general inflation on input costs, are likely to hit already-wafer-thin margins. In such an environment, it’s questionable whether its business model is as resilient as that of many of its competitors.
The business is undoubtedly cash generative. In FY25, return on average capital employed (ROACE) was over 30%. It also returned over £2bn in dividends over the past five years. Net debt relative to adjusted earnings before income tax, depreciation and amortisation (EBITDA) remains strong, at 1.26 times, which should support future dividend growth.
However, when I zoom out and look at the bigger picture, I find it hard to find any real key differentiator from many of its competitors. On that basis, I don’t see the stock really outperforming in the years ahead, and so won’t be investing.
