Shore Capital has reintroduced B&M European Value Retail’s ‘hold’ rating ahead of an expected “muted” quarterly trading update.
The broker, which had previously placed the discount retailer ‘under review’, expects first-quarter revenue to have declined by 7%, with B&M UK down 9% or by 13% on a like-for-like basis.
It added that “93% of all products sold at B&M are less than £20, making it less exposed to share reductions in spending on higher ticket items.
“However, B&M has struggled to pass through the cost inflation to consumers – only 4% so far – due to the elasticity between volume and price on a general merchandise individual category level.
“In addition, as the end-of-season markdown was very limited in the previous year, and due to higher-than-normal inventory level at year end, we expect more markdowns year-on-year, with the associated impact on gross margin.”
Shore Capital concluded: “B&M remains a well-managed company with sound cash generation and tight cost controls.
“B&M is firmly in the retail value-for-money camp. However, we see challenges ahead due to the cost of living squeeze, particularly among B&M’s lower income consumers, and reintroduce our ‘hold’ rating.”
B&M is due to due to update on first-quarter trading on 29 June. As at 1430 BST, shares in the retailer were down 1% at 370.1p.
