Shares in B&M European Value Retail SA (LSE:BME) fell 2% in early trading after a third profits warning in four months, but pared losses as analysts said management appeared to be making progress in the turnaround.
The third-quarter trading update, covering the 13 weeks to 27 December, revealed that group sales increased 2.9%, driven by contributions from new space, partly offset by a 0.6% decline in UK like-for-likes.
In December alone, LFL sales grew 3.0%, following low single-digit declines in October and November, with early January trading said to have continued the positive LFL trend, supported by a strong customer response to clearance events across seasonal ranges and discontinued lines.
Full-year underlying profits (EBITDA) are now expected to come in at between £440 million and £475 million, down from previous guidance of £470-520 million and the City analyst consensus of £479 million.
Analysts at Deutsche Bank said the new strategy under CEO Tjeerd Jegen is "starting to bear some fruit" with LFL beating expectations with a return to positive growth in the past two months.
"We may need to see how much of this was driven by higher levels of discounting and whether even more price investment is required to maintain this momentum," they added.
They noted that Q3 UK LFLs were better than the consensus forecast for a 2% deline.
"Overall this print will divide opinion on whether the LFL recovery is more important than the gross margin investment," the Deutsche analysts said, maintaining their 'hold' rating.
"We see LFL as the most important part of the investment case and therefore view the early success as positive despite the guidance."
Broker Panmure Liberum said progress with Jegen's 'Back to B&M Basics' was "encouraging", with a reduction in FMCG lines informing further trials from February, ahead of a full UK rollout in the next financial year.
"Early stock availability trials are improving stock record accuracy and supporting the clearance of discontinued lines."
At Peel Hunt, analysts said they expected the statement "to be more negative than it proved", having "feared -2% or worse" for UK LFLs, and was also "encouraged" by the December performance.
"However, we expect to downgrade numbers today, as the company plans deeper investment in stock clearance and to build on-shelf availability, which makes sense to us."
"The shares were discounting a downgrade, but the positive LFL in December is a boost. We continue to believe that the shares, with their strong cash-generative characteristics, are worth owning."
The shares fell to 166p in early trading, down 2%, but by after just over an hour of trading were down less than a penny at 172p.