B&M shares plunge as retailer warns on margins; names CEO Arora's replacement

By Yadarisa Shabong

(Reuters) -British discount retailer B&M warned on Tuesday that profit margins would take a hit this year as UK households dealing with a cost-of-living crisis are cutting spending on unnecessary items at its stores.

Shares in the retailer, which sells everything from food to homewares, gardening and do-it-yourself products, tumbled 11% after its statement.

The company also named finance chief Alex Russo as the successor to long-time Chief Executive Simon Arora, who is retiring next year.

Though B&M performed well during the pandemic its shares are down over a quarter so far this year, hurt by the outlook for consumer spending and the announcement in April that Arora would retire after over 17 years at the helm.

B&M, which operates over 1,100 stores across the United Kingdom and France, reported core profit of 619 million pounds ($780.44 million) for the year ended March 26.

Earnings in 2023 are expected to range between 550 million to 600 million pounds, lower than last year but still ahead of pre-pandemic levels.

Britons are facing a squeeze on their disposable income, with inflation hitting a 40-year peak of 9% in April and projected to rise further.

"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 said in an earnings statement.

The grocery sector's outlook has been weighed down by the crisis in Britain and supply disruptions from the war in Ukraine, with big supermarket groups including Tesco and Sainsbury's warning of lower profits this year.

"You could argue that discount shops such as B&M should thrive in high inflationary environments as shoppers 'trade down'," eToro analyst Mark Crouch said.

"While that is a plausible argument, B&M's limited food offering may count against it, especially if shoppers dial down their spending on general household goods, which make up the retailer's core offering," Crouch added.

($1 = 0.7931 pounds)

(Reporting by Yadarisa Shabong in Bengaluru and James Davey in London; Editing by Shailesh Kuber and Susan Fenton)