B&M Value Retail warns on profits as cost-of-living crisis hits margins

B&M Value Retail on Tuesday warned of a hit to profits as Britain’s cost-of-living crisis hit household budgets and announced chief financial officer Alex Russo as a replacement for chief executive Simon Arora.

The company said UK like-for-like sales over the first eight weeks of the current financial year were down 13.2% and 11.5% against 2022 and 2021 respectively amid inflationary pressures which are forcing shoppers to cut back on non-essential items. Shares in the discount retailer fell 11% on the warning.

Group statutory profit before tax remained flat at £525m for the year to March 26, while adjusted core earnings were down to £619m from £626m. B&M operates more than 1,100 stores across the UK and France.

Householders are witnessing a surge in inflation to its highest level in 40 years as consumer prices rise, driven by massive hikes in energy prices. This means people are spending less on discretionary items and has sparked concerns for the retail sector about a slowdown in sales.

B&M, which sells food, homewares and DIY products, said it expected markdowns to return and warned of a “adverse impact from category mix as customers shift spending away from more discretionary higher margin general merchandise categories” in favour of food and other consumer products.

As a result of this gross margin dilution, B&M UK adjusted core earnings margin is expected to fall between 70 to 130 basis points, it added. Core profit this financial year was expected to be £550m - £600m, lower than last year but ahead but above 2020’s pre-pandemic earnings level of £342m.

“Given the uncertain macroeconomic outlook, it is difficult to predict the net impact of a number of factors such as customer down-trading, category mix shift and the impact of inflation on sales volumes,” Arora said.

“The retail industry is facing inflationary pressures whilst our customers are having to cope with a significant increase in the cost of living, making spending behaviour in the year ahead difficult to predict.”