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The last 12 months have been rough for B&M (LSE:BME) shares. Despite economic conditions creating a seemingly ideal landscape for discount retailers, B&M has struggled to capitalise on this tailwind. And consequently, the stock’s down a staggering 53% since last January!
That’s obviously painful. But could 2026 be the year the company delivers a spectacular turnaround? Let’s discuss.
B&M’s problems
B&M’s 2025 share price implosion wasn’t caused by a single event but rather a devastating combination of adverse factors, including:
- Margin compression – underlying operating profitability has shrunk from 9.8% to 6.4%.
- Organic sales growth stagnation – like-for-like sales have flatlined while total revenue growth is stuck in low-single digits despite double-digit growth of competitors.
- Accounting errors – £7m of overseas freight costs were incorrectly recognised, resulting in the CFO stepping down in October.
To top things off, changes to the Minimum Wage and increases to the employer contributions of National Insurance have put further pressure on earnings.
Combined, these factors have caused pre-tax profits to collapse by almost 60% during the six months leading to September. And with rival supermarkets simultaneously stealing market share, it isn’t surprising B&M shares were pulverised.
Can the new CEO right the ship?
In light of all this chaos, Tjeerd Jegen has been brought in as the new CEO to execute an ambitious turnaround. And the good news is there’s plenty of levers he can pull to get things back on track – many of which he’s explicitly highlighted in his ‘Back to B&M Basics’ strategy.
The plan is to re-establish the company’s value perception among consumers through price cuts to offer the lowest in the market. And this message of value is going to be further compounded with the return of ‘manager’s specials’, where store managers have more flexibility to offer discounts on products popular in their local region.
These moves could end up harming profit margins. However, even with its recently reduced profitability, B&M still has a lot more financial flexibility than most of its peers.
What’s more, margin erosion could ultimately be offset by the reduction in product range complexity, which aims to eliminate slow-moving inventory from taking up space in warehouses and store shelves.
What to watch
Jegen’s strategy is already underway. And investors are eagerly awaiting the group’s next quarterly results coming out later this month.
However, while the plan looks good on paper, in practice there remains significant execution risk. Lower prices risk even slower organic revenue growth if volumes don’t rise. Similarly, regaining lost market share is no easy task and could take considerable time, especially when going up against Tesco’s sticky Clubcard loyalty scheme.
It’s also important to note that the government’s Autumn Budget included another increase to the Minimum Wage, resulting in further wage inflation for this labour-intensive enterprise.
Simply put, Jegen has a difficult task ahead. And with the group’s recent track record of disappointments (albeit under previous management), I’m waiting to see some tangible progress before considering snapping up any shares. Hopefully, I may not have to wait very long.
