B&M finance chief Mike Schmidt steps down after accounting error
When B&M’s new chief executive, Tjeerd Jegen, promised “decisive actions” after a profit warning earlier this month, he had little idea things were about to get a great deal worse.
Fast forward a fortnight and the discount chain’s finance chief has handed in his resignation after an accounting blunder forced the company to cut annual profit guidance for a second time this month.
The shares fell by 22.75 per cent on Monday, losing 49½p to close at 167¾p, as B&M warned that about £7 million in additional costs had not been correctly recognised when it updated markets on October 7.
The accounting hitch was discovered at some point in the past few days and stems from an update to the company’s operating system in the spring, which resulted in costs relating to the transportation of goods not being factored into the bottom line.
Half-year profits are expected to be about £191 million, down from previous guidance of £198 million. Yet due to revised run-rates for margins in the second quarter, earnings before interest, taxation, depreciation and amortisation (ebitda) for the full financial year have also been impacted. They are now expected to be between £470 million and £520 million, compared with a previous range of between £510 million and £560 million.
Mike Schmidt, the chief financial officer, will leave B&M after a successor is appointed and a further update on the issue is to be provided at interim results on November 13. It has not yet been decided whether Schmidt, who earned £830,205 in the most recent year including bonuses, will receive an exit payout.
Clive Black, a retail analyst at Shore Capital, described the update as a “shocker” and said “everyone was scratching their heads” about the disparity between a £40 million annual guidance cut and £7 million in misplaced freight costs in the first half of the year. “I think to be honest the forensic piece becomes all the more important because, what has been going on?” he added.
Problems with the underlying system have been resolved but B&M described the financial impact for the 2026 financial year as “material” and said it intended to commission a “comprehensive third-party review” of the matter.
The departure of Schmidt, who was well-regarded from his time as finance chief of DFS Furniture, will pile further pressure on the retailer after sluggish sales contributed to four profit downgrades this calendar year. Alex Russo announced his departure as chief executive in February after a three-year stint in the top job, with Schmidt briefly filling in on an interim basis prior to Tjeerd Jegen’s appointment.
Jegen, an industry veteran with experience at Tesco and Woolworths, is understood to have bought close to £1 million worth of shares since his appointment in June with a remit of turning around the struggling chain, according to stock exchange filings.
Yet the share price has fallen by more than 48 per cent over the past six months, with the group also facing headwinds from increases to national insurance contributions and the national living wage announced in the autumn budget last October.
Waning consumer sentiment has proved a major drag on the British retail sector this year as household budgets feel the pinch from inflation and higher tax bills. According to analysis from EY, the number of UK-listed retailers to issue profit warnings doubled over the most recent quarter ahead of the key Christmas trading period.
• Ex-Tesco executive Tjeerd Jegen to head B&M European Value Retail
WH Smith is awaiting the findings of a Deloitte-led review into its own accounting botch-up in August, which led to annual profit targets being slashed and a near-£600 million one-day writedown of its stock market valuation. The chief executive of Pets at Home, Lyssa McGowan, was also ousted last month after the pet care retailer issued its fifth profit warning of her three-year tenure.
B&M, which has its headquarters in Speke, Liverpool, said on Monday that it still expected the percentage growth rate for second-half like-for-like sales to be between low single-digit negative and low single-digit positive levels, adding: “The group continues to expect that with like-for-like growth, future adjusted ebitda margins for B&M UK can stabilise at low double-digit percentage levels over the medium term.”
Analysts at Shore Capital described the update as very disappointing and said it was understandable that Schmidt would depart “given the scale of the cost issue”.
They added: “While such system issues do happen, the concerns for us are that 1) it suggests that the company is less on top of its cost numbers than we would expect and 2) that the business is running at a lower gross margin than we thought.” It suggested a tougher “route back” to a goal of double-digit ebitda margins, they said.
Tjeerd Jegen, the chief executive, has been trying to turn the chain around
Evgeniy Batchvarov, a senior analyst at Bloomberg Intelligence, said a second guidance downgrade in 13 days “undermines B&M’s credibility as it tries to progress with a turnaround”.
He said the further £40 million annual guidance cut after £7 million in misplaced freight costs over the first half was a scenario “which likely requires more detail”.
Founded in 1978, B&M has an estate of 786 B&M shops in England and 140 stores, alongside 344 shops under the Heron Foods and B&M Express brands. The recent struggles come in stark contrast to the pandemic years, when the company enjoyed a boom as middle-class shoppers cut spending on discretionary items.
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