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The last 12 months have been difficult B&M (LSE:BME) shares. Despite economic conditions creating a seemingly favorable environment for discount retailers, B&M has struggled to make money in the sector. And as a result, the stock is down a staggering 53% since last January!
That hurts. But could 2026 be the year the company delivers a dramatic turnaround? Let’s talk.
B&M problems
B&M’s 2025 price drop was caused not by a single event but by a devastating combination of negative factors, including:
- Margin compression – core operating profit fell from 9.8% to 6.4%.
- Weak organic sales growth – like-for-like sales have been flat while gross revenue growth has been stuck in the single digits despite double-digit growth at competitors.
- Accounting errors – £7m of overseas inventory costs were misrecognised, leading to the CFO stepping down in October.
In addition, changes to the Minimum Wage and increases in employer National Insurance contributions have put pressure on incomes.
Combined, these factors caused pre-tax profits to fall by almost 60% in the six months to September. And with rival supermarkets at the same time stealing market share, it’s no wonder B&M’s shares have been decimated.
Can the new CEO right the ship?
Because of all this chaos, Tjeerd Jegen was brought in as the new CEO to make cheap changes. And the good news is that there are plenty of steps he can take to get things back on track – many of which he clearly highlights in his ‘Back to B&M Basics’ strategy.
The plan is to reinvent the company’s value perception among consumers by reducing prices to offer the lowest in the market. And this value message will be further integrated with the return of ‘manager specials’, where store managers have more flexibility to offer discounts on popular products in their area.
These measures can end up hurting profit margins. However, even with its recently reduced profits, B&M still has greater financial flexibility than most of its peers.
In addition, margin erosion may ultimately be offset by reduced product inventory complexity, which aims to eliminate inventory that is slow to take up space in warehouses and store shelves.
What you can watch
Jegen’s plan is already underway. And investors are eagerly awaiting the group’s next quarterly results due later this month.
However, although the plan looks good on paper, in reality there is still a high risk of execution. Low prices pose the risk of slow organic revenue growth if prices do not rise. Similarly, regaining lost market share is not an easy task and may take a lot of time, especially in comparison TescoSticky Clubcard loyalty scheme.
It is also important to note that the government’s Autumn Budget included another increase in the Minimum Wage, leading to further increases in wages for this labor-intensive industry.
Simply put, Jegen has a tough job ahead of him. And with the club’s recent history of disappointment (albeit under previous management), I’m waiting to see some tangible progress before considering taking any shares. Hopefully, I may not have to wait too long.
