British variety retailer B&M European Value Retail (LON:BME) shares dropped as it said recent trading had slowed without the benefit of hot weather that boosted sales during the summer months.
The company posted a 16.1% increase in group revenue to £1.6bn for the first half ended September 29, as warm weather led to higher demand for outdoor and gardening products. Profit before tax jumped 32.5% to £115mln.
B&M UK sales rise in difficult retail market
At B&M stores in the UK, revenues gained 7.1% with like-for-like sales up 0.9%, excluding the impact of an earlier Easter this year, as the group opened 15 net new stores. Without adjusting for a non-comparable Easter week, like-for-like sales were flat.
The company said like-for-like sales eased in July and August after selling most of its garden and outdoor product categories earlier than usual but growth returned in September as the new autumn/winter ranges were delivered into stores.
Gross margins improved by 42 basis points (bps) to 9.5% thanks to lower levels of discounting to clear products.
B&M UK started the third quarter with like-for-like growth at a similar rate as the first half against a backdrop of a challenging retail market.
“In recent months we have met the challenge of trading against last year's exceptionally strong performance, and the effects of a long warm summer which has partly disrupted the normal pattern of trade,” said chief executive Simon Arora.
“While the important Christmas trading period lies ahead, we are well placed to prosper in a difficult and uncertain retail environment.”
German unit margins hit by higher clearance sales
In the German business, Jawoll, revenue edged up 4.1% to £112mln but gross margins fell 292 bps to 33.8% due to higher clearance activity.
The group’s discount convenience chain, Heron Foods, generated revenues of £175.1mln, compared to the £47.5mln delivered in the first two months of ownership in fiscal year 2018.
B&M takes on France
In October, B&M bought French retail chain Babou, which has 95 stores, for €91.2mln.
READ: B&M buys French retailer Babou for €91.2mln
“France offers exciting potential for growth with a profitable existing value retail sector performing well, in which we expect to develop in the years ahead,” said Arora.
Dividend raised as cash flows rise
The group raised its interim dividend by 12.5% to 2.7p each as cash flow from operations rose to £67.mln from £44.2mln last year.
In morning trading shares fell 9% to 368p.
Liberum repeated a ‘buy’ rating and target price of 475p, saying the first half earnings were in line with expectations.
“The group has yet to prove it can be successful internationally, with work still to do in Germany,” the broker said.
“ We look forward to more details on Babou, which looks to be a good opportunity, but is not without risk.”