B&M European Value Retail's (LSE:BME) second profit warning in as many weeks "erodes trust further", said analysts, with some saying it demands more questions than it answers.
Deutsche Bank said the discounter is "facing a credibility crisis", after Monday's guidance downgrade came less than two weeks after a new 'Back to Basics' strategy was published.
"There is a risk that the financial building blocks did not have the prerequisite foundations," analysts at the bank said.
Management, led by new chief executive Tjeerd Jegen, who took over in June, expressed confidence that B&M will be able to deliver a low double-digit percentage EBITDA margin in the long term, up from circa 10% on the previous call.
However, the path to this recovery is "both steeper and likely longer than previously hoped", the Deutsche analysts said, with an extra requirement to "[rebuild] investor credibility that future assumptions are based on correct information".
Jefferies agreed that it was "very poor optics for B&M" as the update "erodes trust further", and that is "even before we unpick how a £7 million Q2 miss translates into a £40 million full-year downgrade".
Analysts at Panmure Liberum said it "appears to be a one-off operational error rather than evidence of ongoing margin pressure or trading weakness".
Management's explanation was that the issue stemmed from a system update that led to a misclassification of freight costs, which have since been identified and corrected.
"Having spoken to the company, we are reassured this is a technical accounting matter, and the magnitude of the downgrade is consistent with the run-rate impact seen in Q2.
"While the issue raises some questions over operational controls, and the CFO’s departure could prompt some 'kitchen-sinking', we are not concerned that underlying trading is further deteriorating."
Pan Libs reduced its EBITDA forecasts and target price by 9%, but maintained dividend forecasts given the "strong balance sheet and robust cash generation", leading to the target price of 410p also being retained to reflect confidence in the turnaround plans.
Deutsche Bank cut its price target to 250p from 340p, but still sees "upside when the dust settles" and retained its 'buy' recommendation.