BMRPF - B&M European Value Retail SA (BMRPF) Q2 2024 Earnings Call Transcript
2023-11-11 12:23:09 ET
B&M European Value Retail SA (BMRPF)
Q2 2024 Earnings Conference Call
November 9, 2023 4:30 AM ET
Company Participants
Alejandro Russo - Chief Executive Officer
Mike Schmidt - CFO & Executive Director
Gareth Bilton - UK Stores Director?
Lesley Buchanan - Head of Home
Conference Call Participants
Charlie Muir-Sands - BNP Paribas Exane
David Roux - BofA Securities
Richard Chamberlain - RBC Capital Markets
Nick Coulter - Citigroup Inc.
Charles Allen - Bloomberg
Presentation
Alejandro Russo
Good morning, everybody. Thank you for coming. And clearly, a big thank you to America Investors, I'm sure it's quite early, and you will be listening so much appreciated, okay? Hopefully, the presentation will be fairly short and punchy and I will try to leave as much time for Q&A at the end. Questions, as always, if you're not here, they will come today, someday, we'll find them back at the end.
Third presentation, you've seen me here in the first 2, we basically introduced different team members. It's a different group today. They will introduce themselves. I would just introduce them with the first name Gareth, you met him before. Lesly, the 2 of them will have some interesting bits to share, B&M core business. And then we have Cedric and B&A, French team, Mag doesn't need introduction. And you will hear from the guys in a couple of minutes, okay?
So, presentation is quite simple. I think you can see it on the screen, I will just concentrate on 2 or 3 key points, okay? First half, as you know, double-digit top line growth and EBITDA 16% growth in the half. I'm comfortable with our position entering into the second half. Cash very well controlled. Mike is going to expand on his section, but what I would like to highlight is the quality of the stock exit in the first half, which gives us a lot of confidence into the entry gold-on-quarter margin performance, so store is in very good shape exiting they have just to anchor that, which is important.
We've grown the top line at 10%, and we have almost held stock at cost flat pounds half-on-half. So I think that's a key point heading into golden quarter that shouldn't be lost. EBITDA range full year, $620 million to $630 million, we still have 19 weeks to trade. We are in the middle of golden quarter. It's a narrow range. But I think the way to think about that range for the full year is, I'm very confident that is a base case. It will not take a lot to bridge it.
So let me give you a bit of color without getting into the numbers. France and Heron have very strong momentum. So it's a big tick. So just to give you some color in here. We never shoot to a midpoint. So you can assume that I should to the top end. And this conservative range does not require much more, a very low positive single LFL. So if you were to take the last few weeks of the golden quarter guidance I have given you, and that's a big assumption. But if that's 4.5% over the last 3 weeks of golden quarter are sustained into golden quarter? This will be breached at the top end.
So key point in there, it's a base case conservative range, okay? Margin performance is entering golden quarter in top shape. Stock is clean, sell-throughs where it needs to be. I'm confident and cost. Mike is going to elaborate, are very tight. Conservative range, underpinned by LFL momentum, very strong gross margin performance and cost control.
Store openings. This has nothing to do with Wico by the way. So what gives me the confidence of being able to increase that range is 3 things. Yes, the pipeline has been built very confidently with a high level of quality site selection, but operationally, where is retail standards Gari, where it's supply chain, where it's buying flexibility allows me the confines to start ramping up store openings. So it's a combination of quality of sites, operational standards and basically the buying supply chain piece.
The key wording here, guys, is not less than. I'm not saying 1,200, it's not less than. And when you look at the RNS, I'm saying currently at 35 and for the next 2 financial years, again, I haven't said 45 upside, not less than. One point of color, you can assume that the store openings into next financial year are going to be heavily front-ended. Why? Because the pine plan is ramping nicely. You can extrapolate what that means for the P&L. That's a good thing, tick.
So I want you to take a couple of messages in here. This range with 19 weeks to go, it's a conservative range, custom takes much to bid it. I'm just telling you 19 weeks in advance. Baseline, margin momentum takes stock very clean and the pipeline actually in good shape. I'm not going to get into this graph, as you know, I just want to remind ourselves of one key number pre-pandemic year FY '23, 42. This range already takes us back to the peak of FY '21. So this is a business that has shown discipline on capital, on returns, and we have gone 4 years from 342 to a range of 620,630 reach $630 million.
All of those conversations we used to have 1 year, 1.5 years ago, was it pandemic, was not pandemic. I think those 2 charts, I think sum it up for me, okay? Very briefly, I'll expand on stores. We're in pretty good shape. I'm very comfortable how standards continue to increase. The discipline availabilities when it's ripe, pipeline we've spoken, France and Heron continue to motor ahead.
I'll answer one quick question straight on. Why is the EBITDA margin of France in the half, slightly lower than last year? It's because basically, you have a COVID one-off last financial year on lying the businesses in pretty good shape, okay? Mike, to you.
Mike Schmidt
Good morning. So I'm going to start with an overview of the P&L. This is, to my mind, a straightforward and strong picture. Firstly, revenue up 10.4% reflects all 3 of the businesses growing strongly from our proven strategy. Secondly, gross profit margin, up 191 basis points. Two things behind this. Firstly, the expected improvement in our trading margins. If you look at B&M U.K., our trading gross margin increased by 114 bps, which really reflects the quality of the execution of the garden and outdoor season this year. We had a clean stock position coming in this year, and we've got a clean stock position all exit very importantly.
The balancing item in there principally is our usual foreign exchange hedge accounting, the shifts costs, some extent between administration costs and cost of goods sold. As we reported last November, there was an unusually large swing in the prior year comparable. I think if you focus on the trading margin improvement, I think that gives you a particularly fair picture of underlying what we've seen in the business.
Moving on to our key measure of profit, adjusted EBITDA. That's up 16.1%. Alongside the higher gross margins we've already talked about, our actual operating costs are growing at a slower rate than revenue. So a strong operating performance overall. So looking at the detail of the revenue, you can see progress in each of the businesses. U.K. like-for-like growth up 6.2% total sales growth up 8.1%, particularly strong first quarter, after which we saw the expected second quarter moderation. As with many retailers, this is also accentuated by the impact of unseasonal weather.
As you've seen in the past, in the business that as dynamic as ours, extrapolating very, very short-term sales growth period leads you to the wrong conclusion. What is very clear to us is that over the time, we're consistently outperforming the U.K. market as we have done over the last 12 months.
With our continued like-for-like share gain and also our new store openings, we see the U.K. as having significant long-term growth ahead. France and Heron revenue growth speaks very much for itself. Both have double-digit like-for-like underpinning those total revenue growth numbers you see below.
Finally, though, the critical metric that we really do focus on is our customer transaction numbers. And once again, I can confirm that they are meaningfully positive for each business in the period.
On adjusted EBITDA, I'll just focus on the margins generated. The U.K., up from 10.6% to 11.4%, driven by the gross profit margin recovery together with cost discipline. These are strong margins in the sector and are an appropriate benchmark to my mind, for our future first halves of the year. For France, our margin is up 50 bps to 7.8% on an underlying basis, as Alex has touched on. That's good progress this year and is another step towards moving the French profit margins towards the benchmark level seen in the U.K.
Heron, 6.6% for the period, once again, sector-leading. Our underlying operating costs are shown on Slide 11. So as I've mentioned before, these exclude FX hedge accounting and similar elements that distort the year-on-year operating comparison. This year, we, of course, have to mitigate the 9.7% increase in U.K. minimum wage rates and properly serve our transaction volume increases that we've seen. In considering the pressure that we've had to manage here and remembering that employment costs making up more than half our operating cost base, it's great to see the U.K. coming in with 50 bps lower operating costs year-on-year. This discipline on cost is particularly evident in France, where the greater sales growth has also driven strong operating leverage within the business.
Finally, moving on to cash generation on Slide 12. We very much returned to a normal seasonal trading cash flow pattern this year, similar to that which we saw pre-pandemic, with a modest working capital outflow in the first half as we build up high-quality stock to trade our golden quarter.
Year-on-year, our group stock position, Alex mentioned this, is up a little over 2%. Our revenues are up over 10%. That's the discipline we're working with. Our working capital outflow will reverse through to the end of our 52nd week, and we'll maintain our approach of keeping the stock position very much clean and tight.
Our CapEx approach has been disciplined, focused on the new stores that drive the proven returns alongside spending on appropriate maintenance. So it's particularly stock in the numbers there. As you note that the consideration for the Wilkinson transaction is included within the infrastructure line. And with that discipline on profits, on working capital and CapEx, you see, once again, our operating cash generation has been strong, leading to a step down in our net debt and our leverage ratio to 1.1x.
We're therefore declaring a 5.1p interim dividend calculated with reference to the top end of our usual payout range of 30% to 40% of after-tax profit. So finally, just to sum up before handing back to Alex, a few points of emphasis for me.
Firstly, revenue growth. Total of 10.4% for the period, driven in the right way by increased customer transaction numbers. Secondly, discipline. For MEDA's discipline in the cost base, discipline in the stockholding, discipline in the capital that we're investing. And thirdly, that means thus generating the free cash flow.
On net debt, GBP 36 million lower year-on-year after the right investment in the businesses growth and also after GBP 345 million of dividend payments in the last 12 months. So that's over GBP 390 million of cash generated in the last 12-month period. We're going to focus on these points as we go forward through the remainder of the financial year and beyond. Thank you. Back to you, Alex.
Alejandro Russo
Thank you, Mike. Gareth, if you could link the screen, you kick us off with B&M U.K.
Gareth Bilton
Good morning, everybody. I'm Gareth Bilton as Alex introduced. I've met many of you before at previous couple of these presentations at Bamman with the business 23 years and I'm the U.K. stores Director currently. So I just want to take a couple of minutes to talk to you about our grocery category, but not through the eyes of the buyer, which you'll hear from shortly. But from the eyes of the shopkeeper from my team, I guess, there's 700 of those shopkeepers out there.
So just to cover a couple of highlights from Mike perspective. The first one I want to talk about is price. So everyone in the business from the buying team to the store manager are obsessed with price and not just the absolute price of the shelf-edge but the gap in price between us and the competition.
Our price points as it stands, is currently as strong as it's ever been and more important than it's ever been. And that gives us a couple of advantages. The first one and the main one from the shopkeeper lens from my perspective is, the everyday low-price model that we have is simple. It's simple for the customer because it's no complicated multi-bugs and no complicated offers. And it's simple from our store managers to understand how to push value.
So as they trade the stores and we encourage our store managers to trade their floors hard. They have more discretionary space available to them, probably the most retailer of our size out there. They trade the floor hard. They can pack a grocery product, knowing that the brand is strong, knowing that the quality will be good and knowing that the price that they push will be competitive to let them trade their stores hard and drive that trading momentum forward.
The second thing to highlight is supplier collaboration or brand relationships, whichever you want to refer to it. This is strengthened over the recent years. And it gives us 2 things. It lets us trade value and it lets us trade volume. It also, because of those strong relationships, keeps us bang-up to date with newness. It makes our range very credible. We're first to market with lots of new ranges. And the other thing from the shopkeeper lens of that brand relationship is in the day-to-day way we do business, we have a triangle of buying logistics and retail, and we forward plan events and we're able to smooth out peaks and troughs within those activity, which means that we keep our business on the operation very simple, which lets us sort of underpin the everyday low-cost model, it means that we can execute things well and execute them right through this time. But it also means that I can maintain consistency in the store estate, so we don't compromise standards at the expense of Lundin trade driving activity. And that's a key thing for us as we move forward.
And then the last thing that I want to talk about is availability. I guess it's underpinned by everything that I've just talked about is our availability throughout all of the grocery categories is excellent. It's excellent in the distribution centers which means, in turn, it's excellence at the shelf where the customers, which is most important. And what that enables us to manage us to do is, again, it underlines us everyday low cost model because running the shop becomes much more simple and straightforward. We on our gaps, we're not constantly remerchandising and taking time out to address poor availability. It also means that as we have customers that trade down to if they're able to come to our stores by the same branded products at the everyday low price and have the confidence that their return time and again, that those products will be available on the shelf all of the time. I say, from a store manager's perspective, it gives them the confidence to chase lines to set their store up to trade as hard as they come.
Those kind of 3 things for me make our grocery offer for me is the shopkeeper rather than a buyer, the compelling offer that it is. It gets our stores excited about newness and product and gives them the opportunity to chase and trade their own stores in a bit more of an entrepreneurial way than they may be in other businesses. So that's it from me. I'm going to hand you over to my colleague, Lesley Buchanan, who's going to talk to you about her categories.
Lesley Buchanan
Good morning, everybody. I'm Lesley Buchanan and I work under Bobby Arora, heading of the Home and Buying team. I've been with the business for 12 years. And today, Alex and Bobby thought to be a really good idea for me to bring some of this product to life. Then I'm going to talk about 3 things.
The first thing I want to talk about is travel. So China reopened up again for us earlier on in the year, and we were one of the few U.K. retailers to get out the straightened opened, and that was great because we got our buyers back in touch with the supply chain and back with the product and the development.
One of our things that we talk about every day on the buying floors is B&M speed. It came back into China gave us that being on speed. Again, I've got greater speed to market and I've brought some product along. I'm not going to walk through it. But you can see at the first roof product I've gone on the floor here is a really good example of product that we saw trending trend into social media, trending through the supply chain. We got on to that in China. We bought it, and we've had it on the shelves at the beginning of September, and it's selling through already.
But the main thing of getting back there was those face-to-face negotiations who gained back front in front of the supplier again and really hammering those cost prices down. So the negotiation was kick. The second thing to talk about is Simply. So we launched our Simply brand last year and Simply was our resetting of our value message and reinforced in our B&M values. It's gone from strength to strength. It is mainly volume lines. They're great prices, they're everyday essentials. And they've now gone across most of the non-grocery categories, so into DIY and cleaning.
More recently, again, I came with our B&M speed, we've looked at other categories that we can grow within the Simply message. Party being one of them. So again, we set up for Christmas and New Year. We've got the Simply Celebrate range. Our kids offering. So kids is a big part of our business. And the kids range really gives us some great form with print, pattern and color. And we can offer great dining. We've got great tableware, drinkware and that's moved on to textiles as well. So really cool. We've got a glow in the dark, do they set down there which mix with those is given the kids great bedroom.
We've also gone energy saving again. So we went last year. We talked about heat the human and not the home. We recognize our customers looking for value and looking to save money. So this is extended into our throes offering. I can see some of those passed around there and into our energy saving, well, energy saving products to keep you warm at home.
And then finally is what we've done to help our store colleagues trade on our Simply message. So we've brought in some lines, which can be on Clip Strips, jump-in. Some examples down there. We've got some straws and we've got some nice key trade, so perfect with soft drinks, alcohol, store colleagues can trade them through their brilliant pickups, great basket add-ons and it's very easy to merchandise.
And the last thing to talk about is availability. So like Gareth said, availability on known grocery has been excellent. We took a different approach to availability. We've identified never out of stock ever lines. And those lines in the May will be our volume drivers are great price everyday essentials. And those lines that are a B&M customer you would expect to find when you come into our store.
What's allowed us to do this and keep the core availability going is that we're working now on a test and repeat model. So with our new lines and what this does is when the new line comes in, obviously, if it's not a great line and it doesn't deserve a place in the range going forward. We're not sitting on heavy stocks. It minimizes our markdown spend. We can sell it through. If it's an amazing line, obviously, B&M speed, the agility of the supply chain, we can get straight back into it, and it can be back on the shelves as quickly as it came in first time. And I'm going to hand back to Alex.
Alejandro Russo
Fantastic. Good to see product back on the shelf, back on the floor. Thank you, Gareth. Thank you, Leslie. Gareth, unfortunately, knows that this slide is what gets me out of bed every morning. This is a bit I enjoy it most. I'm making a point with Gareth that I don't spend more than 1 day in the office and I spend for that is actually walking the shop with him. I think he got used to it by now, Tony. Thank God, it's a good partnership actually. Look, I'm very happy where we are. Standards are much better and consistent than they've ever been. It will never stop store by store, eye by aisle. And it's actually a bit of a cultural reset now that the team has taken on board very well. So this is why I spend most of my time. This is what the customer sees. And frankly, I enjoy looking at it with my own eyes.
Supply chain, as Gareth has said, is pretty formidable place actually. Stock is where it needs to be flowing well. Productivity, basically a step change in terms of cost to sell. So the whole triangle supply chain, buying retail is in harmony. Property, lots of detail in here guys, I would just repeat the 3 points. 35 store openings this year, not less than EUR 45 million each of the next 2 financial years. And you can assume that FY '25 will be very front loaded, which is a major shift where we've been in the last 2 or 3 years.
Quality, we're opening size, productivity, cell density, accretive, so I'm happy with our process and that combination of supply chain store standards and buying flexibility is what gives me confidence to start ramping up that pipeline, 1,200, not less than, okay? [Ceneric], you can introduce yourself.
Unidentified Company Representative
Yes. Thanks Alex. Good morning, everyone. I'm [Ceneric Majoo]. I'm French. Sorry for my English. So I'm a trading director for B&M France for now 6 years, and from the first day that B&M Group board a company in France. And then this retail field for now more than 20 years in Europe and also in China. So to explain to you what happens in France, you have to know that FMCG is clearly performing strongly. And we need to follow this high growth. That's why we have got lots of things to do. And the first thing that we have done to continue to attract customers every day is to have increased drastically of numbers of SKUs in FMCG so that we can continue to have lots of business and our daily transactions are growing a lot.
Two factors are really key in this journey. First one, as we've got in U.K. is a big signatures of contracts and partnerships with well-known A brands such as L'Oreal, Unilever, Kellog's, Red Bo and Sun. That's why we have got very good availability regarding FMCG in our stores.
Second thing is clearly our Every Day Low Price discipline and to be able to compete with the top retailers in France. Moreover, to reinforce and really underline our price messages, we have implemented in all our stores in France, power base per eye with very clear price usage like Ziff. So everywhere, we have got this in our stores. So we just let now, [Jenny]?
Unidentified Company Representative
Well, good morning, everyone. I'm [Jenny], French too. I've been working at B&M for 5 years as Head of General Merchandise. Before that, I worked for 6 years in China for a major retailer. On category drives the footfall and I'm pleased to announce that for the third year, we won the award of the best retailer of the year for on decoration in France. So we are very renowned about that. And one of the keys of our success in France, I should say, is the exclusivity. We have exclusive things to our product level. We have exclusive products. And by the way, we would believe that we could sell thousands of net crackers in France, such as British product now. So all of this has been possible thanks to a strong synergy with U.K. So France and U.K., we buy together, we buy massive quantity, and we are proud about that.
As you know, B&M is a fast-moving retailer. We buy direct from factories. We have a common sourcing team in China and all countries. And in France, we are committed to adopt the range to the economic situation. This is very important. Our mission is clear, is EDLP, everyday low price and by focusing on core and utility products and delivering exclusive products with amazing packaging, yes, we have fantastic packaging at B&M.
We have reached a double-digit growth in home categories in France for H1. So the last point is that we always keep in mind the EDLC, Every Day Low Cost model. Just to prove that, we improved productivity in store by developing more and more CDU. So this is ready to serve packaging, easy to implement in store, you just remove the top and you put on the shelf. Thanks to that, we improved the productivity store. We've got plenty of ideas like that. So it's simple and efficient. [Foreign language]
Alejandro Russo
France standards are exactly going through the same journey as B&M U.K. I'm not going to expand on the detail. The guys know it live and breathe with me in the same way as the B&M U.K. team, absolutely heading in the right direction. You can see, as Mike said, the productivity coming through in terms of stores. The business is entering in the right shape in the golden quarter, trading strongly, confidently and supplier China is in pretty good nice. So that's all what I'm going to say about France. I have confident that the guys will have a very strong second half of the year.
Heron, Mike said it, this world-class EBITDA margins for our food business, very strong availability, same discipline, EDLC, EDLP, flexible supply chain, no gimmicks concentrate basically on trading the shops are. Very good momentum in the first half, very good momentum into the second half. So very happy with those 2 sides of the business. And I'm going to leave you before we open to questions from 2 or 3 points.
Our strategy is the same hasn't changed. We are a limited assortment disciplined discount. In perfect balance, FMCG general merchandise, we move at B&M speed. We are highly commercial entrepreneurial. And this team has been strengthened in certain elements, and you will continue to meet them every half, where we need to. I'm very happy actually the highest we've had. So we've had supply chain strengthened. The French team is performing very well. So the team is in good shape overall.
Outlook, as we've said, I've given you a baseline range for the year, 620 to 630 last 3 weeks of the first 6, 4.5, if the 4.5 continues, we reached the range. Margin is exactly where it needs to be. Stock is Rusell clean. One analyst reminded me, our pound stock is not only flat year-on-year half-on-half, but it's not substantially higher than what it was pre-pandemic. You can only do that once delivering world-class availability if you have a supply chain which is actually humming in all cylinders, yes? And what that means for the second half and entry into the next financial year is a gross margin percentage is exactly where I wanted to be.
There is no skeletons in the covers. Stock is clean. The system is not clocked. It's just flowing as Gareth said nicely. Same in France, same in Heron, same in B&M U.K. I'm confident about the year. The pipeline is in good strength. We're going to keep very disciplined very high quality of sites will not compromise standards. And that triangle, which is buying retail and logistics and product business is exactly where it needs to be. So I think we can open to questions.
Mike Schmidt
Sorry, Alex. Can you ask people who are online to…
Alejandro Russo
Yes. So I've reminded them so they can pass the questions from there then we'll follow them up. Right, go ahead.
Question-and-Answer Session
Q - Charlie Muir-Sands
First question is really just on current trading. Could you explain the acceleration in recent weeks? Obviously, the weather has normalized. What does that mean for different categories, so how confident should we be that that is a meaningful run rate?
Alejandro Russo
Sure. I think similar to, I think, from memory, what Primark and a couple more highlighted. The first couple of weeks of the quarter were unusually mild. Actually, where we are now it's in the perfect stable weather. So what are the caters that absolutely come in very strongly with Toys. Let me give you an example of Toys. Toys is a bigger category for us in autumn/winter pounds than governs in spring summer. And once you get that weather, people get into a Christmas mindset, boom, Toy start flying. This guy is catching up actually with Toys coming out of the shelves very rapidly. And once it kicks in, kicks in very rapidly.
Home, as Lesley said, performed very, very strongly throughout. But you read some of the ropes, the more weather-related bits that basically gives the uplift. And once the weather comes in, which is where we need to be, the new stock trading strongly. So look, we're still in week 19, but I don't need a 4.5 LFL to get to the top of that range, yes? That's the message like. So whether it has normalized is in co-shape we're just trading hard.
Charlie Muir-Sands
Understood. And the last question is just on space expansion. You're not really measured on the acquisition of the Wilkinson stores. Do you expect those to be at least the average density of the…
Alejandro Russo
At least. Yes, at least. And I will share one point of detail, and I don't want to say too much because you can imagine negotiations are happening. But I think it's proper that I disclose this. One of the 51 million was a freehold, 50 was leasehold. Once you remove that freehold of the 51, Mike, what we have paid is actually peanuts for that optionality. But the inside world is, I am renegotiating every single lease. So if you see any competitor opening them too quickly is because they are not doing it. And I think that comes to B&M discipline. I am never going to compromise operational cost productivity for dashful growth. The answer is, pipeline is in good shape, but I am renegotiating every single list. David?
David Roux
David Roux from Bank of America. Alex, it seems that B&M continues to sort of invest in price. And I guess your big 4 competitors are doing that as well. Can you perhaps just discuss where the value gap is between your big 4 competitors? I think the last number you put out was a 15% to 20% discount in December? And then my second question is just -- do you want to take that first?
Alejandro Russo
Yes. So if you take the big 4, again the cheapest of those 4, we are never less than 15% cheaper. Again, the most expensive or let's say, the 2 big ones, we are easily 23% to 24% cheaper. You take all the noise they put on Clubcard or Nectar, and we are above 20% cheaper, after the loyalty. So that have degraded.
David Roux
Okay. And then perhaps a question for Mike. Mike, I think on Slide 11 where you're showing the growth in OpEx for the B&M U.K. business. I think it came out at 6%, if I'm not mistaken, year-on-year. How do you reconcile that to the 15% we see on a reported basis in terms of SG&A? What's the difference?
Mike Schmidt
Yes. So I think as I touched on, the other factor that's influencing the growth in SG&A costs is the movements of FX income and costs between the cost of goods sold and administration costs. So principally, that's the balancing item. It's not really a factor that you should worry about in future periods. It is far more something that distorted the prior year comparable. So in particular, if you think where we were in terms of exchange rates and FX hedging impacts, we were just coming out of the sort of the period of post lose trust mini budget, which distorted the dollar FX rate in the prior year period.
David Roux
Okay. Great. So core SG&A inflation is running around 6%?
Mike Schmidt
So core SG&A inflation running about 6%, and you can see that, that's meaningfully less than the growth in our sort of overall revenues.
Richard Chamberlain
Richard Chamberlain, RBC. Could I ask a few questions, please. The first one is on the longer-term U.K. target store count, not less than $1,200. How have you sort of arrived at that figure? I mean is that about broadening demographics? What does that assume in terms of London and also sort of average size of store, I suppose, as well.
Alejandro Russo
It's a conservative number. It could have been higher. I'm a conservative kind of cheap. So if I'm putting not less than 1,200, you can read that's a minimum. There is enough demographic catchment analysis based on actually how we trade availability of sites. And as a question was asked, it's all non-dilutive, yes. And it's a confidence, if I look at my openings over the last 2 years, it's the confidence of the sales densities that we are getting. The broadening of the offer is reaching broader customer segments and basically giving them confidence to go for that and higher number. And as I always keep saying, Richard, I will never compromise on the returns of those assets. So when I say not less than 1,200, you can read, that's a conservative number.
Richard Chamberlain
Okay. Great. And the other one is just about -- I think you mentioned during the presentation test and repeat. I don't know when that sort of started. Has that just started? Are there any particular categories there relates to, how is that sort of going so far?
Alejandro Russo
I'll answer your question. So if you go back 5 years, the buy would have been a bit more committed, a bit longer and a bit riskier. The supply chain is now so flexible that actually, you don't have to put an initial Bigora, and the flexibility of the factory, basically relationship we have. If Lesley's lines start shifting, basically, she does not sit in huge quantities on the depot, she can basically replenish very rapidly. So all of these contribute to a lower stock holding, the supply chain works nicely, stock is lower, everybody wins.
Richard Chamberlain
Is there plans coming from the same factories though…
Alejandro Russo
100%. And those relationships which are well established are working very well. So you have a good summer, Lesley?
Lesley Buchanan
Yes.
Nick Coulter
Nick Coulter from Citi. Two, if I may, please. Firstly, just come back to kind of peak like-for-likes. Obviously, you know the weekly cadence, we don't. But you're running into some quite heavy just to kind of get your sense of, why even like-for-like should, I guess, be positive across that period given last year? And then secondly, the space contribution across the last couple of quarters, the contribution to sales seems to have moderated a little and just to understand why that might be in terms of phasing or clutches?
Alejandro Russo
So 2 quick questions. We plan internally conservatively, but the business has sufficient commercial momentum to drive positive LFL. If you look at our half 1 performance, almost half of that LFL is transaction numbers, which is for me, the health of the business. So my inflation component of LFL is substantially lower than the vast majority of competitors. Customers are coming through a till. Gareth has to basically deal with it is on a daily basis. We're giving me confidence that those transactions keep coming and the LFL is positive, price position in Roxolid, Stamos are good, customers now to it, we gained market share. And I think to your key question is, Golden quarter really positive develop up.
Of that, I'm confident, but it doesn't have to be 4.5%. I just need a substantially lower positive LFL to get at a very, very top end of that baseline range, yes. And in terms of the openings, remember, the low point was low 20s, so we opened prior financial year. As we have rebuilt the pipeline, there is always a back-end lag, 35 this year. And again, 35% is a conservative number. It might be a bit higher. Let's see how it plays out. It might be a handful more, who knows. As you start building that pipeline, basically, you get the phasing. So what is a switch spread, the swift spread will be, on average, a store opening the year trip weeks, right? Is easier than that. But as the pipeline comes in, that phasing basically normalizes. So I think you will see the component next financial year of new space to ramp up rapidly.
Nick Coulter
Thank you. Can it be a gradient and go for 3, if that's all right?
Alejandro Russo
If you asked the first one, so I can answer each one of them.
Nick Coulter
I thought it seems to have a French team here. I thought I'll try and ask what's going on in the French consumer market. We've heard from other companies that it's quite tough in France, maybe more so than in the U.K. And is that playing into the advantages of B&M in France in terms of the low pricing?
Alejandro Russo
I'll answer that question, Simply, and I will pass it to [Ceneric]. It's not any different than in the U.K. I mean, clearly, price wins in France what is equation in France on top of opening and ramping up with disciplined openings. It's all around closing the third densities between France and the U.K. as a strategic and that's the objective. If I say in the U.K., B&M roughly half of the LFL transactions, you can read in between the lines that in France, I would say, I do 2/3 of that LFL is transaction numbers. So you can see the customer count. And the team is really focused on price, availability and standards and the consumer is voting with the fit. Is that a must, [Ceneric]?
Unidentified Company Representative
Exactly.
Alejandro Russo
Any more color you want to add?
Unidentified Company Representative
I agree with you when you say that it's because of EDLP, it's true that inflation was very tough also in France. But we succeeded, thanks to the partnership we've got now with the brands to have very good availability and to keep in mind that DNA is really EDLP. So we don't change really this strategy.
Alejandro Russo
What gives me confidence on that French team a strength on the FMCG side. In the same way, we're tracking the price point, this guys don't mention them, he's trucking against 6 competitors, FMCG by line. I see it every week with Bobby. And actually, even with still a small business, it's already winning in pricing.
Nick Coulter
You've sort of touched on my second question really is you talked about the low inventory position. Can you just give us some numbers on how availability has either improved or at least been maintained on the shop floor despite the lower inventory number?
Alejandro Russo
I would say it's substantially improved. Gareth, do you want to put a couple of examples?
Gareth Bilton
For FMCG availability, we are average week in, week out, 98% to 99% distribution center availability, which translates to the same number of the shelf as where the customer is. And because the supply chain is in better condition now than it may have been 18 months ago, 2 years ago, it means that we are able to replenish stock clean. There's no lag from the distribution center, which means that delivery schedule is more effective and it's replenishing what's sold yesterday, if not or sold two weeks ago.
Alejandro Russo
So the debt was on the front foot and without quoting numbers, Lesley, look, there is no home department or toy department that actually will be affecting customer experience. I think availability is, if I compare it to last financial year, what brings it to life. I think the transition away from summer into arm winter, I would say Gareth 2 or 3 weeks ahead. So what the customer is seeing this year compared to last year, stock clean, new ranges come in 3 weeks ahead. I mean, that's a hell of a customer window of availability. Final question.
Nick Coulter
Final question. $620 million to $630 million is a pretty tight range, given the volatility you've seen in like-for-like in just 6 weeks, I did a bit of math, it's swung around quite a lot. What made the decision to have such a tight range on PBT and the fact that you think you can reach the range, doesn't that mean the range should be wider?
Alejandro Russo
I haven't said I will reach it. I say what I've said is if you extrapolate for 4.5%, that would breach it. If I don't put another range, then I get accused that I don't give a range of guidance. So you guys want it off, yes. So I'm trying to put my neck on the lining here, guys. I'm just giving some confidence. So Don, if you want, whatever the rate yes? So what gives us confidence? Price, standards, stock clean and margin in very good shape. So stock is clean, margin is in good shape. And as you know, what drives this business, what drives a B&M general merchandise half business actually margin makes the P&L significantly more sensitive than LFL as long as you are not overbuying. So the entry and the rate of sale that we can see gives us Mike and I the confidence to put another range. Look, we still have 19 weeks. I'm putting my neck on the line as CEO, I'm confident. I'm not saying I'm going to bridge it. What I'm saying is that range does not require a 4.5% LFL. Wait for early Jan, and we'll see. Dave?
Operator
Yes, we've got quite a few coming in online. First one, have you seen any changes in customer behavior in the size of basket or product mix in both the U.K. and France?
Alejandro Russo
I think we are ahead of the customer over the last 12 months in de-risking a necessary high price point. Great example, we don't do big furniture. So we're -- I mean, look at the products we have here on stage. We are acutely conscious on the price point. ATV is holding well. I'm happy that we are at a much lower level of inflation in the competition I think we continue to win market share. You can see that clearly on some of the core FMCG categories, I would say food cleaning will be good examples, Gareth. I mean, reality is if we were not gaining share from higher price point competitors, we will not be able to trade in general merchandise by definition on a positive LFL, which we are. So look, the consumer is under pressure and doubted deal so it's been over the last 18 months, what are we doing about it? Raise our shop focus on price, presented Gar in the best possible way and just be conscious that we are not in the business of basically putting any high price point unnecessarily. Dave second question.
Operator
Okay. Can you confirm the number of relocations and closures for B&M, U.K. and Heron for this financial year?
Alejandro Russo
So the bulk has already happened in half one, B&M U.K., there probably 2 or 3 to go in the second half. So it's minimal. And then going forward is annual, let's say 3 to 5 per annum B&M, okay? Again, I only close if it's enhancing, okay? So it's accretive asset recycling.
Mike Schmidt
And I would add actually to that, Alex, that where there is a replacement, it's usually considerably larger than the store. We are closing smaller stores.
Operator
CapEx for going forward, an increase in store numbers?
Alejandro Russo
So the way we think about CapEx is the balance is maintaining the right level of maintenance CapEx. We see that as a sub 1% of revenues. And then secondly, we have as much capital available for new store growth as is required because our new stores are delivering proven returns. And so if you look at the average cost of our fit-outs, we think that that's going to stay steady moving forward, and it will just link to the number of stores that we are opening. So no major increase. No major increases.
Operator
Okay. And on the store rollout, are we looking for a wider range of store sizes or formats in order to meet this target?
Alejandro Russo
Steady.
Operator
Okay. There are more questions, but I'll turn it back to the room for more questions. Any more questions in the room? I'll carry on then. One more at the back there. One at the back. We probably have 2 or 3 minutes left.
Charles Allen
Charles Allen from Bloomberg. Just a very, very quick one for me. You touched on the broader stock reaching a wider demographic of people. I was just wondering if you have any statistics for customer loyalty, how do you know that you're going to retain those customers moving forward?
Alejandro Russo
Customer transaction numbers being positive. That's the health of the business.
Charles Allen
Do you track customer loyalties at all? Can you see if you're retaining those customers?
Alejandro Russo
We don't do marketing, we don't do customer research. I think we make sure that there is the till. Dave, a couple more?
Operator
Yes. Are there any plans to increase automation within the warehousing?
Alejandro Russo
No. We're a CapEx-light business. We have highly productive supply chain owned by Shany Bits.
Operator
So pushing on that point in more detail on the question. Some of our competitors have automated warehouse that frees up more man hours for the store. Any comments on that?
Alejandro Russo
I think I remember saying in the past, confidently that we trade in B&M U.K. 12% to 13% EBITDA margin. I think they have their choices to make themselves.
Operator
Okay. And I think that was the last question. I think I've gone through them all now.
Alejandro Russo
Bank on time, B&M speed. Good to see you guys. Thank you.
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B&M European Value Retail SA (BMRPF) Q2 2024 Earnings Call Transcript