It’s been a bad morning (20 October) for the B&M European Value (LSE:BME) share price. By 10am, the group’s shares were worth 17% less than they were at the start of trading. That came after the discount retailer issued another profit warning for the 52 weeks ending 28 March 2026 (FY26). It also announced the departure of its chief financial officer.
What’s going on?
It’s the group’s second profit downgrade in less than three weeks. This time it said it had identified “approximately £7m of overseas freight costs not correctly recognised in cost of goods sold, following an operating system update earlier this year”.
The group started FY26 expecting adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) to be around £620m. Following weaker-than-expected sales, it reduced this to £510m-£560m. Today, based on “revised second-quarter margin run rates”, it’s cut this estimate to £470m-£520m.
For the second half of the year, it’s forecasting UK like-for-like sales to grow at between “low-single-digit negative and low-single-digit positive levels”. As we’ve seen, the difference between these two outcomes is worth £50m of EBITDA.
The announcement continues a sad decline for the group. It was ejected from the FTSE 100 in December 2024 having joined for the first time in September 2020. Since then, its share price has fallen 51%. But it doesn’t have to be like this. Frasers Group, another retailer, fell out of the Footsie on the same day. Its shares are now worth 10% more.
A huge yield
One positive outcome from the falling share price is that the stock’s now yielding 16.8%. This is based on amounts paid over the past 12 months. Of course, with earnings coming under pressure, this could lead to a cut in the dividend.
And based on its past four financial years, it’s difficult to predict what its future dividend might be. As well as making interim and final payouts each year, the group’s recently paid a series of special dividends.
| Period | Interim (pence) | Special (pence) | Final (pence) | Total (pence) |
|---|---|---|---|---|
| FY22 | 5.0 | 25.0 | 11.5 | 47.5 |
| FY23 | 5.0 | 20.0 | 9.6 | 34.6 |
| FY24 | 5.1 | 20.0 | 9.6 | 34.7 |
| FY25 | 5.3 | 15.0 | 9.7 | 30.0 |
Can it recover?
On the face of it, the group has lots going for it. It’s a familiar face on the country’s high streets and retail parks. It has 1,130 stores in the UK, trading under the B&M and Heron Foods brands, and 140 units in France.
And its shops always seem busy to me. With disposable incomes remaining under pressure, it’s in a good position to capitalise with its low-cost offer.
As part of its turnaround plan, the group’s embarked on a ‘Back to B&M Basics’ strategy, which includes further price cuts, giving greater autonomy to managers to introduce ‘specials’, reducing stock lines and improving product availability. This all makes sense to me. However, it will take up to 18 months for the full impact to be felt.
But the group continues to face some possible challenges. There’s speculation that the Chancellor’s looking to shift more of the burden of commercial rates away from smaller shops to larger ones. And persistent supply chain inflation could eat away at its gross profit margin.
At the moment, there’s too much uncertainty surrounding the group’s numbers to make me want to invest. But like most retailers, Christmas is a crucial period for B&M. I shall therefore revisit the investment case once I know how it’s performed over the festive season.
