Discount retailer B&M beats profit forecasts, confident on managing rising costs

By Simone Lobo and Yadarisa Shabong

June 3 (Reuters) - British discount retailer B&M beat annual pretax profit expectations on Wednesday as its turnaround gathered pace, and said it was confident of managing higher costs linked to the Iran conflict, sending its shares up as much as 17%.

B&M faces intense competition from supermarket loyalty programmes and pressure on lower-income household budgets, prompting CEO Tjeerd Jegen to launch a turnaround plan in October to revive growth in its UK business.

The results offer relief to investors concerned that supermarket competition is placing structural pressure on B&M's discount model, with the shares down more than 60% over the past year.

Asked by analysts whether B&M would respond to Tesco's loyalty programme, Jegen said he did not foresee further price cuts at this stage.

While the Middle East conflict is pushing up freight, fuel and energy costs, Jegen said B&M had enough levers to offset the impact and saw "no reason why" B&M UK could not return to double-digit core profit margins in the medium term.

Shares rose to levels last seen in October. The move may have been exacerbated by short-covering. Short interest in B&M stood at 8.7% on June 1, making it the sixth most shorted stock in the UK, according to the Short Tracker platform operated by Castellain Capital.

B&M also said warm weather since late May had boosted sales of seasonal goods after a slower start to the new financial year.

The company, which sells everything from groceries to furniture and garden items, said adjusted pretax profit fell 38% to £284 million ($382 million) for the year ended March 28, but still beat the £274 million expected in an LSEG poll.

The decline was largely driven by price cuts and higher wage costs, after B&M issued two profit warnings over the past year.

"FY26 was a difficult year that saw profits fall due to a challenging market and execution issues," Jegen said, adding that cost savings would feed through once UK like-for-like sales return to growth.

($1 = 0.7435 pounds)

(Reporting by Simone Lobo and Yadarisa Shabong in Bengaluru. Editing by Kevin Buckland and Mark Potter)