Today, the long-term investing case for B&M European Value Retail SA (LSE:BME) shares is put under the microscope by two Fools with opposing stances…
Bullish: James J. McCombie
B&M is a discount retailer that has grown rapidly. Given that the UK’s living standards are expected to fall significantly over the next two years, I — unfortunately — expect it and its shares to perform well going forward. The latest trading update was positive, and management is confident of making the most of the run-up to Christmas.
The company will face pressures to keep costs low and deal with cost inflation simultaneously in the short run. But it does have good relationships with its manufacturing supply base in Asia, and with 1,018 stores in the UK, it holds a dominant position.
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A quick visit to the company’s website reveals hundreds of vacancies advertised within the last month. There is a pipeline of new stores, and a new, widely experienced CEO has come in to take the reins from the founder who guided B&M through its early, rapid expansion.
Bearish: Ben McPoland
Soaring inflation should be advantageous to a retailer with the word “value” in its name. Shoppers should be flocking to the stores of B&M European Value Retail.
In theory, that is. In practice, growth has slowed, with this year’s H1 results showing meagre 1.8% sales growth year over year. Its adjusted earnings per share (EPS) figure was down 23% over last year.
B&M is facing the same rising input costs as every other retailer. Its margins are being squeezed. Yet the firm can’t raise prices too much without losing its value proposition. I’m sceptical that a combination of rising costs and low growth will result in great shareholder returns.
Also, chief executive Simon Arora announced this year he was stepping down after 17 years in charge. Maybe new leadership will reignite growth. Or maybe not. There’s just too much uncertainty for me to buy shares right now.
