B&M faces profit warning as new CEO unveils turnaround strategy

B&M European Value Retail has issued a profit warning as its new chief executive Tjeerd Jegen pledges “decisive actions” to restore the former discount powerhouse to consistent growth.

Shares tumbled nine per cent after the FTSE 250 retailer admitted that likeforlike sales in the UK dropped 11 per cent in the second quarter—worse than both internal expectations and City forecasts. Profits for the full year are now expected to fall considerably short of predictions with earnings before interest taxes depreciation and amortisation set to range between £510 million and £560 million compared to analysts’ hopes of £609 million.

The business blamed rising wage costs which increased by about £30 million in the first half of the year and new costs related to packaging tax rules. Despite moments of robust demand such as double digit sales growth for outdoor merchandise in April following early good weather general merchandise gains were offset by a decline in sales of fast moving consumer goods.

Jegen who joined in June has embarked on a “Back to B&M Basics” plan honing B&M’s price position focusing store ranges and improving product availability with an aim to reignite customer enthusiasm. He stated returning the UK division to sustainable likeforlike growth is the top priority. Concrete measures include lowering prices on key value items revamping manager’s specials promotions and sharply improving stock availability across the estate.

B&M confirmed it has cut average prices on key value lines by just under two per cent. The company expects the full effects of this strategy will take twelve to eighteen months to materialise but remains confident these actions will reestablish BM’s value credentials.

Analysts are cautious but see the logic in these moves. Peel Hunt described the update as “below hopes” noting weak execution and communication around lower prices but acknowledged a comprehensive plan is now in place. Shore Capital highlighted the importance of the price reset to improve BM’s competitive edge but warned margins will be squeezed as investment ramps up.

B&M’s journey from sector darling to a retailer under pressure will be closely watched not least by the Arora family founders who retain a major stake and by rivals such as Aldi Lidl and newer discount entrants. Jegen’s reputation as an operator with pedigree offers a ray of optimism that the retailer can regain its former momentum but investor sentiment indicates the road to recovery will not be easy.