Fast-growing retailer B&M European Value Retail SA (LON:BME) got off to a strong start in its latest financial year, with the warm British weather and late Easter helping to boost sales in its first quarter.
For the three months to the end of March, total group revenues surged by 18.3% to £656.3mln (Q1 2016: £554.8mln). Even when the effects of currency changes are stripped out, that still represents year-on-year growth of 17.2%.
Strong UK sales growth
B&M’s UK business – it has a smaller operation in Germany as well (Jawoll) – enjoyed “excellent” like-for-like growth of 7.3%, the discounter said, largely buoyed by strong grocery sales.
Nine stores were opened in the quarter across the UK, while B&M opened four more in Germany. It expects to open another 40 to 50 new UK stores during this financial year and a further 20 or so in Germany.
After previously focusing on building its presence in the north, the London-listed group is intensifying on the south after finding that its model still performed well in supposedly more affluent parts of the country.
‘Customers seeking value in uncertain times’
“This quarter's like-for like growth represents B&M's strongest first quarter for three years,” said chief executive Simon Arora.
“It's driven by customers, wherever they live throughout the regions, becoming ever more receptive to the outstanding value delivered by B&M's unique business model in relation to the things they buy regularly for their homes and families.
“In these uncertain times, and with inflation returning to the UK market, more and more shoppers are actively seeking out value in our stores and that means our business is strongly positioned to do well and continue its rapid growth.”
Although it’s still early in the year, B&M said it was confident of meeting full-year profit expectations, with analysts currently forecasting a pre-tax profit of around £219mln for the 12 months to March 2018.
Growth set to continue, says broker
“Q1 trading is very strong and as the structural challenges across the grocery segment deepen the strength of the discounters is only improving,” wrote Liberum analyst Wayne Brown in a note to clients this morning.
“B&M offers exposure to this dynamic in the UK but also offers super normal rates of growth as it grows its German business off a low base.
“The group has reached a stage of maturity that it is generating FCF (free cash flow) well in excess of its capital requirements supporting a total dividend yield of c.5% per annum.”
Brown has the stock as a ‘buy’ with a price target of 380p.
Shares edged 3% higher to 345.3p on Wednesday morning.
--Updates for broker comment--