B&M has recorded strong sales and profit growth in its second half as its rate of store expansion hits record levels. Here is what the analysts say.

“The interims show very decent growth. The big surprise is that in the UK, B&M has opened 47 new stores in just 26 weeks – a record rate of openings for B&M – more than double the openings in the same period last year.

“B&M warns that this has brought operational challenges – ‘we have experienced below-normal service levels to stores as we approach peak trading. This will have a short-term impact on overheads and in-store product availability’.

“The news that LFL sales growth was only 1.2% in H1, because of 1.3% cannibalisation by new stores, will also raise eyebrows, although it is reassuring to hear that overall earnings growth and return on investment remains strong and that the push into Germany is going well.” – Nick Bubb, independent analyst

“The company has said that it is seeing an increasing cannibalisation effect from the rapid store expansion, and estimates that LFL would have been +2.5% in the absence of cannibalisation (c. 40 stores excluded). The overall sales growth was driven as usual by new store openings.

“There have been some growing pains, however, due to the high level of store openings and the introduction of two new distribution centres, requiring early staff recruitment and higher training costs. These, combined with a slower start to the Xmas peak due to mild temperatures, have had an adverse impact on LFL sales in the build to peak.

“In essence our view is unchanged – we are fans of the business model. The roll-out potential in the UK is an attractive prop of the investment case, even without the overlay of a potential roll-out in Germany.” – David Jeary, Canaccord

“The market backdrop suggests a degree of caution in terms of near-term forecasts is advisable across the sector, but we believe that B&M’s unique format characteristics and growth outlook more than justify the current valuation.

“The UK business remained the prime engine of growth, with EBITDA rising by 20%. Underlying cash generation remained robust; despite the step up in capex, UK sales increased by 26.5%. The backdrop was marked by food price deflation and adverse weather for seasonal lines. New space contributed over 25% to sales (c. 29% in Q2), with cash paybacks remaining exceptional.

“[German business] Jawoll’s EBITDA growth of 7% was as expected, with benefit from the inclusion for the full six months being offset by the c.15% currency headwind. The integration into B&M’s supply chain continued and the new format trial was extended prior to possible accelerated roll-out next year following the warehouse extension. After 18 months of ownership, we see encouraging signs that the group could develop a scalable formula here.” – Matthew Taylor, Numis

“Store expansion remains the key tenet of growth for B&M, with the retailer aiming to move beyond its status as a regional retailer to become a dominant national player.

“The retailer has been equally ambitious with the scale of its European expansion, believing the market to remain relatively untapped, especially with many European economies still a long way off a full recovery. In Germany, Jawoll will have added a further six stores to its portfolio this calendar year, while its Far East sourcing has seen the introduction of new ranges such as toys and festive decorations.

“Clever sourcing is one of the key factors underpinning B&M’s success. Its direct sourcing model, which applies to its own-brand exclusive ranges, and branded goods that come straight from companies directly, allows it to compete strongly on price, but also ensures its product offer is sufficiently different from its rivals.” – Greg Bromley, consultant, Conlumino