The discount retailer B&M has warned that its profits could drop as customers struggling with the cost of living crisis opt for cheaper products.
It highlighted an “uncertain macroeconomic outlook” that could prompt customers to switch to cheaper products, making it difficult to predict the impact of inflation on sales volumes.
Households in Britain are having to cope with a surge in inflation to its highest level in 40 years as consumer prices rise, particularly because of higher energy prices. That has left them with less money for discretionary spending and made investors nervous about the prospects for retailers.
B&M’s share price dropped by more than 11% on Tuesday morning, the biggest faller on the FTSE 100. The share price fell to its lowest level since June 2020, three months before B&M joined the FTSE 100.
B&M was one of the retail industry’s Covid winners as it was allowed to stay open during lockdowns.
B&M said on Tuesday it expected customers to shift spending from more discretionary higher-margin products such as gardening items and Christmas decorations in favour of essentials such as food and toiletries.
Discount retailers such as B&M hope the impact will be cushioned as shoppers look for cheaper options. However, Simon Arora, B&M’s major shareholder and outgoing chief executive, acknowledged the difficulties facing the industry.
“The retail industry is facing inflationary pressures whilst our customers are having to cope with a significant increase in the cost of living, making spending behaviour in the year ahead difficult to predict,” he said.
“However, we have seen before that during such times customers will increasingly seek out value for money, and B&M is ideally placed to serve those needs.”
Arora, who announced last month that he would retire, will be replaced as chief executive by Alex Russo, a former executive at Asda, Tesco and the B&Q owner Kingfisher, who has served under Arora as chief financial officer. Russo will receive a salary of £800,000, plus the opportunity to gain four times that amount in bonuses.
The company said profit margins would fall by between 0.7 and 1.3 percentage points but would remain structurally higher than pre-pandemic levels, with its preferred measure of profitability expected to be between £550m-£600m.
That would be down from £619m achieved in the previous year but up from £342m in the financial year ending in 2020, before the pandemic struck the UK.
