B&M European Value Retail SA (LON:BME) was praised by some City analysts despite lacklustre results on Friday as the variety store managed to keep costs down and maintain margins.
However, the FTSE 250-listed retailer posted a slowdown in revenue growth, up 9.3% on a constant currency basis in the 13 weeks 28 December, versus 12.3% growth in the first half of its financial year, knocking its shares significantly lower.
READ: B&M growth slows over Christmas as it holds off from further discounting
But analysts at Liberum said, in a post-update note: “We see this as a solid overall performance in what is proving to be a tough Christmas period across retail.”
"While top line may now be a little softer for the year, the focus on margins and costs control means we do not expect any material change to consensus forecasts today," they added.
Analysts at Shore Capital also said they expected to stand pad. In a note to clients, they said; "We do not anticipate any change to our forecasts or indeed consensus on the back of this trading update.
They added: "We reiterate our Buy rating on the company noting that the investment case remains in tack, although the UK LFL performance may mean that the shares trade sideways for now. We expect positive news to follow on the sale of the Bedford DC and the sale of the German business in due course."
Toy sales a drag
While B&M's ‘core’, year-round categories performed well, the difference was felt in more seasonal areas such as toys, sales of which could have been down by 10%, according to some analysts, while they can usually rise by up to 12% in the period.
“B&M think that there has been a general malaise amongst shoppers (has the average child been naughtier this year than last?), and also that the lack of a blockbuster film or product has not helped either,” analysts at Peel Hunt said in a post-update note, while suggesting that the problem may also be structural.
The shortfall in sales was counterbalanced by a reduction in man-hours and by avoiding further promotions before Christmas to avoid denting full-year forecasts, which B&M said remained intact.
New openings should help. As the group's £120mln new distribution centre has now been completed, the plan is to open 12 new B&M stores in the third quarter reaching a total of 51 gross new stores by the end of the financial year.
“Full operational roll-out is due this quarter which will be essential in supporting future growth,” Hannah Richards, retail analyst at GlobalData pointed out in a note.
“Despite only obtaining marginal like-for-like growth, B&M has been buoyed by record level peak season sales, and its outlook remains positive as the retailer has shown its resilience amidst a challenging retail backdrop,” she added.
The City was less forgiving, however, with B&M shares dropping 8% to 365.1p on Friday.