Ahold Delhaize (AD.AS) has shared a stable financial performance for the first quarter of 2024, with a slight increase in net sales and a focus on customer satisfaction, organizational simplification, and cost control. Despite a modest decline in the U.S. market, the company has seen growth in Europe and remains confident in meeting its financial targets for the year.
Key Takeaways
- Ahold Delhaize reported a 0.4% increase in net sales, with European growth compensating for U.S. declines.
- The U.S. market experienced a 0.6% drop in net sales to €13.3 billion, impacted by the divestment of FreshDirect.
- European sales rose by 4.6%, driven by new stores and comparable sales growth.
- Online sales declined by 10.1% in the U.S. due to FreshDirect's divestment, but bol.com's gross merchandise value grew by 1%.
- Free cash flow increased by €356 million compared to the same quarter last year.
- The company remains on track to achieve a 4% profitability level in Europe by 2025 and reconfirmed its 2024 guidance.
Company Outlook
- Ahold Delhaize is confident in achieving their 2024 guidance, including a 4% margin and €2.3 billion in free cash flow.
- The EPS is expected to be in line with the previous year.
- The company anticipates a return to 4% profitability in Europe by 2025.
Bearish Highlights
- U.S. net sales were negatively impacted by the divestment of FreshDirect.
- Diluted underlying earnings per share decreased by 2.9% due to foreign exchange rates, higher financial expenses, and income taxes.
- The end of tobacco sales in the Netherlands had a 1.9 percentage point negative impact.
Bullish Highlights
- Growth in Europe offset the decline in the U.S., with a 4.6% increase in sales.
- Positive volume trends are expected in both the U.S. and Europe due to increased investments.
- The company's online platform, bol.com, has gained market share and is leading its closest competitor.
Misses
- Online sales in the U.S. segment dropped by 10.1%, mainly due to FreshDirect's divestment.
- The negative impact of the divestment of FreshDirect on U.S. margins was approximately 15 basis points.
Q&A Highlights
- CEO Frans Muller emphasized the company's efforts to decrease shrinkage and increase customer value through private label sales and promotions.
- Jolanda Poots-Bijl explained the increase in free cash flow as a result of temporary factors, including lower inventories and the divestment of a facility.
- The upcoming Strategy Day in the Netherlands was highlighted as an important event for the company's future planning.
In conclusion, Ahold Delhaize's first quarter of 2024 reflects a stable performance with strategic focus areas aimed at enhancing customer satisfaction and achieving financial targets. Despite challenges in the U.S. market, the company's growth in Europe and strong online presence position it well for the upcoming quarters.
InvestingPro Insights
Ahold Delhaize's recent performance in Q1 2024 shows a company navigating through market fluctuations with a strategic eye on growth and profitability. To further understand the financial health and future prospects of Ahold Delhaize, let's delve into some key metrics and insights from InvestingPro.
InvestingPro Data for Ahold Delhaize (ADRNY (OTC:ADRNY)) reveals a robust market capitalization of $30.25 billion USD, demonstrating the company's significant presence in the market. The Price/Earnings (P/E) ratio, an indicator of the company's valuation, stands at an attractive 15.06, with an adjusted P/E ratio for the last twelve months as of Q4 2023 at an even more compelling 12.05. This suggests that the company trades at a low earnings multiple, as highlighted by one of the InvestingPro Tips, which could appeal to value investors looking for potentially undervalued stocks.
Furthermore, Ahold Delhaize boasts a strong dividend yield of 2.98%, a testament to its commitment to returning value to shareholders. This aligns with another InvestingPro Tip that notes the company has maintained dividend payments for 18 consecutive years, reinforcing its reputation for financial stability and shareholder-friendly policies.
InvestingPro Tips also indicate that Ahold Delhaize is a prominent player in the Consumer Staples Distribution & Retail industry and has exhibited a strong return over the last three months, with a price total return of 11.71%. This performance underscores the company's resilience and ability to deliver shareholder value in a competitive market landscape.
For readers looking to gain deeper insights and additional analysis, there are more InvestingPro Tips available, which can be accessed by visiting https://www.investing.com/pro/ADRNY. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of financial data and expert analysis to inform your investment decisions. With InvestingPro, there are a total of 12 additional tips available for Ahold Delhaize, offering a comprehensive overview of the company's performance and potential investment opportunities.
Full transcript - Koninklijke Ahold NV PK (ADRNY) Q1 2024:
Operator: Ladies and gentlemen, good morning, and welcome to the Analyst Conference Call on the First Quarter 2024 Results of Ahold Delhaize. Please note that this call is being webcast and recorded. Please note that in today's call, forward-looking statements may be made or statements other than statements of historical facts may be forward-looking statements. Such statements may involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those included in the statements. Such risks and uncertainties are discussed in the interim report first quarter 2024 and also in Ahold Delhaize's public filings and other disclosures. Ahold Delhaize disclosures are available on aholddelhaize.com. Forward-looking statements reflect the current views of our Ahold Delhaize's management and assumptions based on information currently available to Ahold Delhaize's management. Forward-looking statements speak only as of the date they are made and Ahold Delhaize does not assume any obligation to update such statements, except as required by law. The introduction will be followed by a Q&A session and it is expressed by those asking questions or not necessarily the views of Ahold Delhaize. At this time, I would like to hand the call over to JP O'Meara, Senior Vice President, Head of Investor Relations. Please go ahead, JP.
JP O'Meara: Thank you very much, Sharon, and good morning, everybody. I'm delighted to welcome you today to our Q1 2024 results conference call. On today's call are Frans Muller, our President and CEO; and Jolanda Poots-Bijl, our CFO. After a brief presentation, we will open the call for questions. In case you haven't seen it, the earnings release and the accompanying presentation slides can be accessed through the Investors section of our website aholddelhaize.com, which also provides extra disclosures and details for your convenience. As always, and to ensure everyone has the opportunity to get their questions answered today, I ask that you initially limit yourself to two questions. If you have further questions, then feel free to reenter the queue. And to ensure ease of speaking, all growth rates mentioned in today's prepared remarks will be at constant exchange rates unless otherwise stated. With that, I hand the call over to Frans.
Frans Muller: Thank you, JP, and good morning, everyone. I'm pleased to report a stable first quarter, placing us well on track to reach our goals and aspirations for the full year. 2024 is an important year for our company as we pivot to our refreshed strategy, which are very much looking forward to unveiling in two weeks time. As we tee up for this next phase of our journey, we are working hard to ensure we are fit and ready to transition to a more robust growth profile. On that front, three areas in particular drive much of our operational agenda for this year. First of all, our relentless focus on the customer, our price positioning and assortments and leveraging the strength of our great local brands. Secondly, further, the simplification of our organization to sustain growth investments and drive innovation and as always continue to be laser focused on cost control and cash flow delivery. So let me briefly step into the first two of those, and Jolanda will cover the third as we reflect on the first quarter. Although inflation is stabilizing in our markets, the price value equation continues to be of utmost importance to our customers as household budgets remain tight. Therefore, our brands have been very active, delivering great value, quality and savings to customers, creatively using the full spectrum of our brand assortments and omnichannel toolkits. In the U.S., one example of this is at Giant Food, which has lowered prices on hundreds of its private label items and has expanded its flexible rewards loyalty program to include double points on Giant brand items purchased. Stop & Shop is partnering with the State of Rhode Island to pilot its governmental SNAP program called Eat Well, Be Well. This program is the first of its kind in the U.S., providing SNAP recipients with up to $25 per month in additional financial incentives for purchasing eligible fruits and vegetables. And in Europe, as Albert in the Czech Republic, active users of the My Albert app now receive a 15% discount on organic foods and Nature's Promise healthy products. This is the third European brand that rewards customers for choosing healthy products following the Delhaize SuperPlus and Albert Heijn Premium programs. Moving to the second area of our agenda for 2024, the simplification of our organization. Unlocking the benefits of prior year interventions and building off the additional cost plans we put in place, they are delivering good results, and we can see with the consistent margins we delivered in the first quarter. The largest of those simplification initiatives was the Belgium Future Plan. One year into the plan, the Delhaize team are making great progress with many key milestones already achieved. In February, the team finalized agreements to franchise all of the 128 own-operated stores. And to date, 76 stores have already transitioned to the new owners and we are in a good cadence to complete the transitions in the second half of the year. From those stores already transitioned, the results are very promising with store sales, customer frequency and basket size all trending upwards. In the U.S., we made a major move in the first quarter to streamline our support brands into one Ahold Delhaize USA support organization. This shift will bring all support organization together to seamlessly partner with the five great local brands, so they can do what they do best, namely be the trusted local grocer in the markets and accelerate omnichannel growth. JJ Fleeman will share more on this and our vision for growth in the U.S. at our upcoming Strategy Day. In addition, our decision to orient our online fulfillment capabilities towards more efficient less asset-intense, same-day delivery models, such as click and collect is really paying off. Our online sales in the U.S. grew 5% year-over-year in the first quarter on a like-for-like basis, fueled by new customer growth, as well as strong retention of existing e-commerce customers. We continue to make steps to further improve our e-commerce performance driven by, first of all, labor efficiencies and cost rationalizations in all channels transitioning from lower efficient fulfillment centers to our flexible “store first” network strategy. And The launch of our partnership with DoorDash (NASDAQ:DASH) is already off to a strong start with over 1,800 stores across all five brands now live with the DoorDash marketplace. The partnership is bringing new customers, which are primarily convenience shoppers that are typically purchasing smaller baskets, but looking for a faster delivery time for an immediate need. Slide Number 10, driving more growth and leverage from our online capabilities is also a top priority for our European teams as we benefit from increasing demand and new external relationships. One such aspect of the online experience that we are developing is an innovative proposition for business customers with the ambition to offer quality and accessible services to a wide range of companies at an affordable price. At Albert Heijn, the brand has entered into new B2B relationships with large childcare services and health care providers, including Holland Food Service, a leading partner for care facilities. And they have also started offering all business customers a standard 10% discount on all organic and Albert Heijn Terra products. And Terra is the Albert Heijn’s fully plant-based own brand product line as we extend our health and sustainability ambitions from the home to the workplace. And remember, our omnichannel customers are on average two times more valuable. Driving healthy sales is a key selling point and one of our most important long-term ambitions. We are leaders in healthy product innovation, and it’s amazing the things that still can be achieved in product formulation. For example, in 2023, Albert Heijn reduced 150 million sugar cubes, 62,000 kilograms of salt and 275,000 kilograms of saturated fats from their own brand products compared to the previous year 2022. And to enable customers to access more fiber-rich foods, Albert Heijn also increased the number of whole meal breads on the shelf, while keeping the price similar to that of the white variety. In terms of innovation on a broader scale, two other initiatives I want to highlight. Our participation in the global retail innovation fund, called W23 Global and the launch of our new tech studio in Bucharest called AD/01. In April, we announced that Ahold Delhaize has joined forces with four other leading grocery retailers and have established W23 Global, a collaborative venture capital fund, to accelerate innovation across the grocery retail ecosystem. The focus of this fund will be on investing in globally scalable tech-led innovative, transforming retailing and addressing common ESG challenges. We also launched a new tech studio in Bucharest, Romania, called AD01. The first talents are currently coming on board. And the plan is to have around 250 top talents involved in this tech studio within the next few years, while fostering a vibrant, inclusive engineering culture. They will work together on innovations with the aim of providing leading customer experience at Ahold Delhaize European brands. You will hear much more on these at our Strategy Day on May 23. And I look forward to welcoming many of you in person to the great city of Zaandam. Now over to Jolanda, to talk more about the financials.
Jolanda Poots-Bijl: Thank you, Frans. And good morning to everyone. Our performance in the first quarter once again highlights that we are a resilient company with a portfolio of strong local brands in both the U.S. and in Europe, allowing us to deliver a consistent set of results. Overall, inflation rates have moderated in the U.S. and have come down rapidly in Europe, impacting our top line. At the same time, we are still battling the cost inflation impacts in the center of our P&L. Looking at our financials for Q1, we have managed this inflation imbalance well as we tightly manage our costs and actively look to drive leverage as volumes begin to improve. Getting to the key underlying numbers for the quarter, as shown on Slide 13. Net sales grew 0.4% or in constant exchange rates, 1.3% to €21.7 billion. This was negatively impacted by the divestment of FreshDirect and the cessation of tobacco sales in our own operated supermarkets in the Netherlands. The Group comparable sales growth was 1.6%. Group net consumer online sales decreased by 1%, negatively impacted by 5.7 percentage points from the divestment of FreshDirect. This was offset by double-digit growth at Food Lion, Hannaford and Albert Heijn. Group underlying operating margin was 4%, in line with the prior year. Improvements in our European performance were offset by modest declines in the U.S. GSO Insurance results were comparable to the prior year. Diluted underlying earnings per share were €0.59, down 2.9%, primarily driven by foreign exchange rates, higher financial expenses and income taxes. Slide 14 shows our results on an IFRS reported basis for Q1. The difference versus our underlying figures are mainly due to the cost from our future plan in Belgium as we transition stores to the new owners. On Slide 15, you see comparable sales growth by region, including and excluding weather, calendar and other effects. This shows we experienced a positive effect from calendar shifts of 1 percentage point in the U.S. related to the timing of Easter and New Year's Eve. In Europe, there was around 50 basis points negative net impact due to various factors that I will shortly explain. In the U.S., net sales were €13.3 billion, down 0.6%. Net sales were negatively impacted by €158 million from the divestment of FreshDirect. Strong growth in pharmacy was offset by the non-recurrence of emergency SNAP benefits, the moderation of inflation rates and lower gasoline sales. Our online sales in the segment declined 10.1% negatively impacted by 14.8 percentage points from the divestment of FreshDirect. This was partially offset by double-digit growth at Food Lion and Hannaford and the positive contribution from our new partnership with DoorDash. Underlying operating margin in the U.S. was 4.6%, down 20 basis points from the prior year due to higher shrink and higher labor and higher service costs, which was partially offset by the margin mix benefit from the divestment of FreshDirect. In terms of brand momentum, Food Lion’s impressive performance continues, with now 46 consecutive quarters of comparable store sales growth. Our omnichannel remodels are really paying off our brand, the Wilmington and Greenfield markets are delivering fully against expectations, and we are excited that the rally market remodels are well on track to complete 167 store upgrades later this summer. Turning now to Europe. Sales were €8.5 billion, an increase of 4.6%. This was due to the positive impact from comparable sales growth of 2.8% and the net opening of new stores, including the conversion of Jan Linders stores. Europe's comparable sales growth figure includes a negative impact of 1.9 percentage points from the end of tobacco sales at our own operated supermarkets in the Netherlands as of January 1. A positive impact of 0.8 percentage points from the timing of Easter and a positive impact of 0.7 percentage points from the cycling of the strikes in Belgium in the prior year. Going forward, it is important to realize that our net sales will be negatively impacted when our own Delhaize stores are converted to affiliates. In that case, we will no longer account for the sales to the end customer, but only the sales to affiliates. At bol which celebrated this quarter, its 25th birthday. Gross merchandise value, excluding VAT was €1.4 billion, up a modest 1%, growing over proportionally with our first-party sellers. Bol started the year strong in a market that continues to show limited overall growth. We continue to see strong growth in value-added services, such as advertising and logistics, which grew 30% and almost 10% for the quarter, respectively. Underlying operating margin in Europe was 3.2%, up 0.3 percentage points. We benefited from a performance recovery in Belgium, in part due to cycling prior year strikes and lower energy costs, which were partially offset by higher wages and an increase in the noncash service charge for the Netherlands employee pension plan. Moving on to Slide 19. Q1 free cash flow was €377 million which represents an increase of €356 million compared to Q1 2023. This was mainly driven by a positive contribution from working capital largely due to the timing of holidays and lower net investments as divestments were €129 million higher than prior year. The latter is primarily related to the sale of two U.S. meat processing facilities. In March, we successfully priced a €1.6 billion multi-tranche transaction including a €500 million seven-year green bond and a €700 million 12-year sustainability-linked bond with each tranche very well-received and multiple times oversubscribed. At the end of April, we issued our green bond impact and allocation report, providing insights in how we use the proceeds from the €500 million green bond issued in 2023. The largest portion we allocated in green buildings and energy-efficient categories. For example, Albert Heijn’s newest state-of-the-art home shop center for our online business as a fully gas-free infrastructure and more than 5,400 solar panels and energy-efficient solutions. This wraps up my financial review of Q1 and brings me to our outlook. Given the solid start of the year, we reconfirm our guidance for 2024. I’m confident that we have a strong foundation to deliver on our commitments for this year as we are ready and energized as we gear up for our next phase of growth. And I look very much forward to welcoming many of you to our 2024 Strategy Day on May 23. For those wishing to attend in-person today is the last day for registration and there are only a few spots left. For those wishing to follow the live webcast, you can sign up via our website or by scanning the QR code on this slide. It will be an eventful few days, during which you will see some of our impressive facilities, and you will hear from our leaders and associates on our plans for the future in both the U.S. and our European businesses, as well as a few special deep dives on group-wide initiatives. With that, I’d like to thank you for tuning in. And operator, please open the lines for questions.
Operator: Thank you. [Operator Instructions] And your first question comes from the line of Sreedhar Mahamkali from UBS. Please go ahead. Hello Sreedhar, is your line on mute?
Sreedhar Mahamkali: Hi, good morning. Can you hear me?
Operator: Loud and clear.
Sreedhar Mahamkali: Okay. Thank you, and thanks for taking my questions, Frans and JP. A couple of questions, please. Firstly, and Frans, you’ve touched on one support organization in the U.S. I’d be very interested in knowing what is changing? And what does that mean to the operating companies. Secondly, you talked about more robust growth profile. Can you elaborate a little bit do you actually these growing footage, number of stores, roll of M&A? Or is it that you're just referring to accelerating comp store sales growth only. Perhaps these two are to be discussed in a lot more detail on the 23rd, but any early thoughts would be very helpful. Thank you.
Frans Muller: So thank you very much for the two questions. You almost gave already the answer on the second. Namely, we see each other on the 23rd of May, when we will let talk more about growth in general.
JP O'Meara: We hope to welcome you anyway.
Frans Muller: Yes, hopefully, Sreedhar will be there, but it’s also the same type of mantra as we always have. We fight for same-store sales growth on the same square meters as the first priority being the most profitable sales we have. But we also will talk more about our growth profile when we talk about channel and when we talk about other plants, we have in mind to excite and inspire our customers. On the U.S., the support organization, we had – you might remember that we had a retail business services organization, RBS (LON:NWG) and then People Digital Labs organization, PDL. And we brought all the organizations together in one overall service company. And by doing so, we got let’s say, efficiencies because those service companies, and they were more than two were also supported by an HR organization by a finance organization and these kind of things, and we brought that now together. And we see, first of all, immediately synergies there. The second thing, which is important as a strategic direction is that we would like to put the great local brands with strong teams fully into the ownership and positioned to – with their own personality of their brands and they do the best thing customer facing in the markets where they are strong. But we also would like to support them from a more central base with supply chain, with IT, with digital, with HR administration, and a number of those initiatives where we can do this in a more – much more efficient way when we support that also from the center. So we will get more support to the brands in a centralized way, but we also get our centralized functions more efficient. And JJ Fleeman will share with you more on the 23rd of May what we have in mind and what is so-called project cinnamon is meaning for us also in cost efficiencies. But in the end, we would like to get faster to market in the end. We would like to support our brands in a better way. And you’ll hear him also talking about private labels, for example, which will be another topic like AI and like the people components and the community components, those will be the deep dives in our Strategy Day [ph] here in the Netherlands. And then you also will hear more about the support functions, what their role will be both in the U.S. and in Europe.
Sreedhar Mahamkali: Thank you. Well, I have it very briefly. In terms of the U.S. banner performance, anything you can add on Stop & Shop and joined companies, please. I think you’ve referred already to Food Lion and Hannaford. I’ve been interested in hearing what the performance was like in Q1. Thank you.
Frans Muller: That’s a little bit an unchanged scenario, Sreedhar. We are very happy with the overall performance of our AD USA business. But we shared with you before that we are not content yet with our performance of Stop & Shop. We did a lot of things there, and the team did a good job in remodeling more than half of our stores already. So that is going in the right direction, and those stores are performing well. But there’s more to do there on the Stop & Shop total company, and that’s what is – what I announced already earlier will be an important topic on the 23rd of May too. The other brands leaders in their markets. Happy to comment more on that on the 23rd of May, but so we’re quite content with their performance.
Sreedhar Mahamkali: Thank you.
Operator: Thank you. [Operator Instructions] And your next question comes from the line of James Anstead from Barclays. Please go ahead.
James Anstead: Yes. Good morning, Frans, Jolanda. My two questions. First one, U.S. comp store sales. If we look ex-weather and calendar, then you’ve had two quarters now of minus 0.5%, so things are stabilized. The question would be, with the SNAP effect more or less dropping out in the next quarter, are you confident that the business overall in the U.S. should be returning to positive comps in 2Q? That the first question. And then – sorry for asking a slightly technical one. But on a European online sales growth, there’s quite a big gap opening up between total online sales growth and net consumer online sales, the gap has been widening over recent quarters. I presume that’s something to do with third-party sellers, and how those sales are registered, but my interpretation would be the third-party sellers are seeing much less rapid growth, but that didn’t seem to tally with what Jolanda said on the call, if I heard correctly. So I don’t know if you could just explain that gap? Thank you.
Frans Muller: Yes. Thank you, James, for both questions. Jolanda will pick up the second one. Let me say a few things to the first one. If you look at the total development in the first quarter, when we talk about volumes and when we talk about the consumer sentiment, then I think it’s right that you picked up and Jolanda mentioned this already that this was the last quarter where we still – compared to last year, we had a comparison with the SNAP sales. We discussed this earlier, that is a 4% effect on our sales numbers. It will be out in the second quarter in comparison. The second thing is that we see in the first quarter positive trends in volume in our brands, in all our brands, by the way, and we have a couple of brands which are already in positive volume territory. This has to do with the fact that not only us as a retailer, but also our vendors are manufacturers looking forward to a positive volume growth and we see further investments from their side in the trade funds too. So that’s where we see the investments. That’s where we see the volume trends and to make the link with Europe on volumes, just to maybe be ahead of one of the questions coming earlier – coming later. In Europe, we see overall a positive volume development for Europe as a total geography. And we also see there positive volume trends in the same – for the same reason why we see this in the U.S. vendors invest more, promotional money, trade funds go up. And we’re almost in the U.S. at trade funds levels of pre-COVID which is a good sign. I think we indicated this already in the last quarter that we see those trends moving. So that’s the reason for volume. There’s explanation for SNAP. And that’s the outlook for the year where we said earlier as a company, by the end of the year, I expect that we have positive volume developments in both Europe and the U.S.
Jolanda Poots-Bijl: And the second question, well spotted indeed, that online sales is developing at a higher base that are not net consumer online sales and the in-between is indeed the third-party sellers. So in my part of the introduction, I already that – I already mentioned that especially the first-party element in there is developing more positively than the third-party sellers, and that is mainly related in the two bold.
James Anstead: So just to follow-up on that. Is that an active decision by bold to change its commercial terms or emphasize it’s first party growth, is that deliberately or…
Jolanda Poots-Bijl: It’s a softer market. It’s not just…
Frans Muller: So James, if you look at bol as a platform, then the third-party sales is roughly 60% of the total volume, that’s one thing. And the first party is the 40%. First party is growing for bol third parties at the moment a little bit more challenged. But so at a much wider group of 50,000 traders on that platform and they compete like you know. There’s also a little bit more on the Chinese imports as well in the European Union. So we support those sort of third-party trades with a lot more extra tools and elements like advertising, like logistics and its bold plan to support those third-party traders even more also for the future because they supported us so well and in total, we have 40 million [ph] number of items on the platform. So there’s no intent. The intent is to have an even stronger relationship with the third-party sellers offering them more services. But the market is just competitive and the market is soft. Overall, bol is gaining share. And we also do very well in the Dutch market. But it’s not an easy market in the French – in the Dutch speaking, Belgium and for Board itself. We’re at a nice data point also just to make the online total in perspective. If you look at our online grocery sales, which is not necessarily bol, we grew by 10% in the quarter. So that is a nice data point and also on the grocery sales in Europe, we grow above market and we also gained share there. And of course, it is mainly the Dutch and Belgium market.
James Anstead: That’s very helpful. Thank you.
Operator: Thank you. We will now take the next question. And your next question comes from the line of Izabel Dobreva from Morgan Stanley. Please go ahead.
Izabel Dobreva: Hello. Good morning. Thank you for taking my questions. My first question is going back to the U.S. business, and I wanted to follow up a little bit on the FreshDirect disposal. So I understand the business was loss-making. So there is a mechanical make positive impact on the margin. But beyond that, could you comment a little bit whether there is any scope for additional savings? So was FreshDirect using any part of the existing logistics chain? And maybe now there is some unused capacity that you can save money on? Or was it kind of really ring sense and the early benefit you get is the saving on the losses? That’s kind of my third question.
Jolanda Poots-Bijl: Thank you for that question. The impact of FreshDirect on our first quarter was 15 basis points. So it’s – the margin in the U.S. was hit by a few elements that offset each other. More or less, we had increased shrink. We had increased high services, we have the upside of FreshDirect. And of course, we’re facing higher labor costs in general.
Frans Muller: FreshDirect, Izabel is a stand-alone business. Was a stand-alone business and is still a stand-alone business. So there we have some minimal transition services we give to the new owner of FreshDirect, but it’s a stand-alone business in itself. And there’s no link to our logistics or there’s no impact on AD U.S., let’s say, connected to the sale of FreshDirect.
Izabel Dobreva: Okay. And then my other question was going back to Profi, as you’re close to consolidating the deal. I was wondering, can you give us more color on the financials of the transaction and what level of synergies you’re now targeting? How that fits between cost and revenues, and any kind of financial color on the KPIs you’ll be using to measure the success of the transaction going forward?
Frans Muller: Izabel, the transaction is with the authorities in Romania in the meantime, but the RCC, the Competition Committee in Romania. And it’s in their hands at the moment. So we will not further comment on the financials apart from the things we already have shared with you earlier. And we expect an outcome in the second half of this year.
Jolanda Poots-Bijl: And we will also be able to disclose a bit more.
Frans Muller: Sure, sure. When we have approvals and we know exactly where we will be and timing wise, then of course, we will give a lot more to Izabel. But at the moment, we stay with the numbers we released so far pending authorities approval.
Izabel Dobreva: Okay. Thank you.
Operator: Thank you. We will now take the next question. And your next question comes from the line of Clement Genelot from Bryan Garnier & Co. Please go ahead.
Clement Genelot: Good morning to all of you. Two questions from my side. So the first one is regarding the guidance. So with Q1 margin being flat, is it fair to assume that the trend will further improve over the remaining nine months with recovering volumes in the U.S., the franchise rollout in Belgium and so on. And that eventually, full year group margin will be up year-on-year and not just flat? And my second question is whether about Giant Food, how would we interpret Giant Food’s price cutting proves levels in Q1. Does it just reflect the pass-through of lower cost? Or is it to ever some kind of margin real investment to react to other players? Thank you.
Jolanda Poots-Bijl: Let me take the first one, and thank you for that question. We have – based on the solid first quarter, we have reiterated our confidence in the outlook as we provided before. So no changes in there. We stick to the 4% at least margin, the €2.3 billion of free cash flow and the earnings per share in line with last year. So no new insights in that perspective. The second question Frans you will take that.
Frans Muller: Yes, one second. Okay. Sorry to understand a little bit the question clearer, but I understood it now. Sorry for that. So we probably shared with you that we improved our private label attractiveness by adding items and also adjusting here and there. Price levels, this will have no impact on the margin profile of Giant Food as such, because we see that with private label, we increase attractiveness of the total portfolio. We make sure that customers are staying with us. And there also we see, of course, bigger baskets coming out of this. So that is compensating for potentially more attractive prices, private label margins in general, have a higher profile than most of the national brands have.
Operator: Thank you. We will now go to the next question. And your next question comes from the line of Robert Jan Vos from ABN-AMRO ODDO BHF. Please go ahead.
Robert Jan Vos: Yes. Thank you, operator. Good morning all. Yes, two questions on Europe. To what extent will the cycling of the strikes in Belgium still have an impact on second quarter growth and profitability in Europe? That's my first question. And my second question, I remember that you once said that there's no reason why Europe should not move back to around 4% profitability. Do you still think that? And can you remind me what time frame you roughly envision for that to be achieved. Those were my questions.
Frans Muller: Thank you, Robert Jan. Yes, your memory is 100% correct. And I always said earlier, together with the team here, we said earlier that for Europe, we will return to four levels two, and we are trending towards that. And that will not be in the 2024 year so that we don't misunderstanding is there because we sell some Belgium effects to cover. But 2025 and beyond, we'll get closer to those numbers. And we're trending very nicely in the right direction. And you see the recovery already now with 13 basis points in this quarter. So for me, there's no reason to doubt that, that 4% number will come for Europe. And then we are also a 4% company in the European geography. For the first question.
Jolanda Poots-Bijl: Yes, I don't think – of course, indeed, the strike had a positive impact in Q1 on the European margin of 55 basis points, but there are a lot of elements, other elements driving that margin. And relating to Francis answer, we are going towards that. We are on the recovery to a 4% also in Europe, and we expect 2025 onwards to see that fully, and we will see that trend throughout the year despite the strike support we had in Q1.
Frans Muller: Very positive trends, Robert Jan on the sales numbers, 76 stores converted, that is 60% of the 128, the remaining stores in the remainder of the year coming in, good connections with our social partners, good connections with our associates in the converted stores and we are very optimistic about the results of those stores, what I mentioned earlier. And you see that the entrepreneurial spirits the strength of the Delhaize brand, the Sunday openings and these kind of things all help to get to that position where we are. And at the same time, we, of course, simplified our model for Delhaize because we only will have, by the end of the year, only one business model, one operating model there with a fully affiliated franchise business. So very positive, great job done by the Belgian team. Tough right, but I think we're now in a very good space.
Robert Jan Vos: All right. That’s clear. Thank you.
Operator: Thank you. We will now go to the next question. And your next question comes from the line of Michiel Declercq from KBC Securities. Please go ahead.
Michiel Declercq: Hi, yes, thanks for taking my question. My first question would be on the U.S. and the shrinkage that you still mentioned. I was just wondering, this is, of course, a bit of worse – more shrink than the first quarter last year. However, you also had some shrink in Q3 and Q4. I was just wondering how this compared to the Q4, for example? And I mentioned – you mentioned in the previous calls that you had taken some actions. I just want to know if this is bearing some fruit. So that would be my first question. And then the second would be on Europe and the tobacco sales. So already almost 2% impact in the first quarter. I expect this to accelerate a bit maybe in the second half. But I was just wondering, does this have any size impact on the footfall and maybe people who come for tobacco and also take something else for the store and if you see any impact from that? Those would be my two questions, please.
Frans Muller: Let me start with the tobacco. That is not my favorite subject. [Indiscernible] I’ll leave the first question to you on the shrink in the U.S., and we can support each other there to give the best color to Michiel. Tobacco sales, you’re right with the effects on the sales numbers, what you just shared with us. We see no negative effect on footfall. We see also that mark that Albert Heijn is gaining market share in the Dutch market. And it will be completely level playing field by the first of July because then all the supermarkets are not [ph] allowed anymore by law to sell tobacco and tobacco in the wider definitions, including the vapes and all these kind of things. So by the first of July, we will have 100% level playing field, Albert Heijn went early on the first of January, no negative footfall effects, which is very promising because if the level playing field kicks in, then I think we’re already well positioned and prepared. So that’s on the tobacco. Then on the other effect on shrink, Jolanda, would like – do you like to take a bite on that one?
Jolanda Poots-Bijl: Shrink, yes. Well, Q-on-Q, the shrink impact was 20 basis points in the U.S. that if we look at the fourth quarter of the year, going to the Q1 quarter of this year, it didn’t get any worse. So you see that the measurements that we’re taking have a positive impact.
Frans Muller: In Europe, we took also a number of measures, especially in the Western European markets. And there, we really saw shrink going down. You talk about, we all know a number of us now in the Dutch and Belgium supermarket environment. We have quite some checkouts, self-checkouts. So we installed new technology there, new algorithms, a different way of conversing with customers on checking the purchase based on the algorithms. We have more protection on the items as such. And we have a comparable eight to 10 action item list in the U.S. too and those getting rips now. So in Europe, we are a little bit further already. In the U.S., we see a positive trend. We stabilized so far, and we work furthermore to decrease that number as well, which is an industry phenomenon by the way. And so far, all stores are there, all departments are open, but you might have seen that and some of the retailers in the U.S. on the West Coast of the U.S. that some closer stores or closed aisles in stores. That is for us not the case. We have a full assortment on offer, and we work furthermore to reduce that number, but stabilized so far is not getting worse.
Michiel Declercq: Very good. Thank you.
Operator: Thank you. We will now take the next question. And your next question comes from the line of Frederick Wild from Jefferies. Please go ahead.
Frederick Wild: Good morning Frans, Jolanda and JP.
Jolanda Poots-Bijl: Hi.
Frederick Wild: Thanks for taking my questions. I will say the big strategic one for the CMD. So two small ones now. First, thank you for those comments on the shrink cadence between Q4 and Q1. Would you also be able to describe a bit about how the consumer passes have been changing, maybe trading down private label mix, et cetera, let me see some color on that. And then secondly, a more technical one. The Easter impact in Q1. Could you quantify how much of that will unwind in Q2, both from a sales and margin perspective as we start with those in our models? Thank you.
Frans Muller: On private label and customer behaviors and sentiments. I think we discussed this topic earlier and we got stronger over time. What does that mean that we would like to make sure that if customers have challenged household budgets that they can buy food healthy, sustainable and affordable in all our stores in every week of the month, so to say, depending on the budget. So both in the U.S. and in Europe, we work strongly on more promotions or more offers on the right timing on virtualized offers. We got by Newsweek, the best – the award for the best loyalty system in the U.S. So we invested a lot in the path on loyalty system and hyper-personalized offers. So that’s why we can be much more pointed to customers on value, but also in specific offers when we talk about diets and preferences and so on. So you will see, and you see in the U.S. and in Europe and growth of our private label share. And what we’ve tried to do, of course, is that we try to avoid that customers are leaving us as a supermarket brand because they would like to find some items, for example, value outside our stores. And that is – we would like to make sure that customers can deal with their basket and can deal with their budgets in our stores. So that’s why we see. We are not completely satisfied with debt development and debt opportunity at the Stop & Shop brand. We talked about it earlier. And we talk indeed on the 23rd of May, more about this, Frederick. But for example, in the Dutch or the Belgium stores, we see increased private label sales. We see a number of price entry items going up by 17% in the Dutch market, by 23% in the Belgium market. So you see that the first price product is coming more in our stores, and we see also that the participation by customers is going up. Promotion shares, we see going up too because we would like to make sure that customers get the good deal, those promotion shares are supported by our suppliers with the same things to grow volumes. So, so far, it's a good I never like trading down terminology because our private label products are sensationally good quality price quality products. So is maybe trading sideways at best. But we're doing a good job there. And for example, the Albert Heijn [ph] brand does not lose any customer and is gaining market share. And then Belgium, just to take that opportunity, in Belgium, we get Delhaize Belgium after this intervention, back to our pre-intervention market shares and there's all a reason to assume that we will grow our market share in Belgium with the positive news I shared with you before. And let's not forget in the Dutch and the Belgium market we also have an Albert Heijn brand, a very successful there both in market share gains but also in profitability. And we have also a very successful ball [ph] brand on the Dutch-speaking part of Belgium to. So a three-brand strategy there, and we're quite happy with market share development, but also to offer customers the best value given the sometimes challenged household budgets.
Jolanda Poots-Bijl: Okay. And thank you for your other questions, Frederick, as well. The Easter impact, as I said in my introduction, the Easter impact on Europe was 80 basis points. In the U.S., it's a little less because in the U.S., we also had the impact of New Year's Day in that graph. On margins, we don't disclose the impact of Easter and New Year's Day. So that's limited there.
Frederick Wild: Great. Thank you very much.
Operator: Thank you. We will now go to the next question. One moment please. And your next question comes from the line of Emmanuelle Vigneron from HSBC. Please go ahead.
Emmanuelle Vigneron: Yes. Hi. Thanks for taking my question. I have a quick one regarding the level of promotions in the U.S. and in Europe. Could you please give us the level of promotion? And if there is any change in trend? And my second question, it's regarding bol.com. What is currently the market share in the Netherlands? And what is – and which is the closest competitor of bol.com in the Netherlands? Thank you.
Frans Muller: So Jolanda will take the Bol question, and thanks for being with us, Emmanuelle. On promotion levels, I think we can say two things that in, I think without exception in all brands, promotion shares go up, but those are funded by the vendor community, by the manufacturers. And those promotions get, of course, smarter in a way that they get more attractive but also more digital and more personalized as well. And if you look at your bonus box or if you look at your individual bonus offers, for example, the Albert Heijn brand or your specific promotions on healthier food at the late brands or you look at all the type of deals, which Stop & Shop has developed in the last four or five-month to make the brand more price effective. We see also nice traction there. So promotional level go in general up supported by the manufacturing industry to drive volume, and the more and more we try to make it more personalized through our loyalty and data availability. And that's, of course, the investments – the heavy investments we have made in the last couple of years.
Jolanda Poots-Bijl: And Emmanuelle, on your question around Bol, we're very proud that Bol was able to gain market share in the last quarter, 50 basis points up, and their total market share is in the high teens as we say.
Frans Muller: I think, JP, but of course, this is not typical an IR type of remark, but there is roughly more than double our second contender in the marketplace.
Jolanda Poots-Bijl: That sounds about right in Frans.
Frans Muller: Yes. Sounds about right. So we're competing very well against the number two in the marketplace, which is also big fit to the Bol team. They do an excellent job there.
Emmanuelle Vigneron: Thank you.
Operator: Thank you. We will now go to the next question. And your next question comes from the line of Fernand de Boer, Degroof Petercam. Please go ahead.
Fernand de Boer: Yes. Good morning. Its Fernand de Boer from Degroof Petercam. Two question on my side. Jolanda, in your prepared remarks you mentioned the impact of Belgium moving to franchisees on the sales line. Could you quantify it a little bit, because I thought that was always the case also in Q1? And then on your guidance on EPS, you were minus $0.02 in the first quarter, but you stick to about where actually the comparison base certainly in the U.S. with SNAP behind a set becomes more easy. What keeps you away from becoming more positive on this about EPS growth?
Frans Muller: So I think both are for you, Jolanda the EPS guidance and the first question.
Jolanda Poots-Bijl: Well, the impact, the first question. Thank you, Fernand for asking the first question on the franchisee transformation is on an annual basis, 70 basis points. And your second question? Well, your second question, the line was a bit slow, but I think your second question was why we didn't improve our guidance or are more specific on EPS. Was that the second question?
Fernand de Boer: Yes, because I think we certainly were snap behind in the U.S. So the comparison base becoming easier, Belgium making progress. I have the feeling there is some room in the EPS growth compared to last year instead of about.
Jolanda Poots-Bijl: Well, thanks a lot. The current EPS outlook is around, and we stick to that. And then in the back of your head, EPS is also touched by AVEX [ph] asthat was one-third of the explanation of the -- of the deviation of EPS versus last year in the first quarter. And we also have to deal with higher interest rates and a somewhat elevated tax level. So that's also elements that determine the EPS that we will achieve this year.
Fernand de Boer: Okay. Thank you.
Jolanda Poots-Bijl: You’re welcome.
Operator: Thank you. We will now take our final question for today. And your final question comes from the line of François Digard from Kepler Cheuvreux. Please go ahead
François Digard: Good morning. Thank you – to take my questions. There's two, if I may. The first is in the U.S. margin of Stop & Shop investments weighed negatively to the U.S. operating margin or maybe was simply that it was the same level of investment that last year Q1, but if you could highlight the impact that would be very helpful. And the second is about free cash flow. To what extent the increase is simply linked to calendar effect. On how we have to figure out that for Q2. Thank you.
Frans Muller: Can you take the second one already now, Jolanda Poots-Bijl.
Jolanda Poots-Bijl: Yes, of course, of course. So we'll start with the second question on free cash flow, and thank you for asking François. The free cash flow upside in this quarter was indeed related to at one point to – working capital, and that was largely related to calendar. We had, for example, major impact, lower inventories at the end of the quarter because of the good Easter. So that's a temporary effect. And the other impact was, of course, the divestment of the BEAT [ph] facility in the first quarter.
Frans Muller: And the first question in the wrong sequence. But the first question, I understood that the price investments in Stop & Shop, like we set with a number of different promotional strategies negative effect on the total profitability of AD USA. The answer is no. And there's always balancing out these kind of things because you get margin uplift, but you also get more traffic and you get more bigger baskets and you get a different participation in your private label brands as well. So all those profiles, all those margin mix elements together means for us that we don't have a negative effect on the price investments and the work we do at Stop & Shop.
François Digard: Okay. Very clear. Thank you. But the negative impact may be on sales in term of percentage, but not in margin, I'm correct?
Frans Muller: Yes. Correct. Yes and we hope to have, of course, a positive effect on sales, when we invest in pricing. And so that's what we're going to discuss with you guys on the 23rd of May. If you make it to the Netherlands, Francois, but we would like to grow the business of Stop & Shop like-for-like. We would like to grow our market shares like-for-like with Stop & Shop. And we have a number of strategies there. And private label is one and price competitiveness and loyalty promotions in the mix. So we're going to share more with you about this, but we would like to grow this business store-by-store. And we would like to also grow sales and profitability over time. Is it okay for you? Is it clear for you?
François Digard: Yes, perfectly clear. Thank you very much. See you.
JP O'Meara: So operator, thank you very much that’s, I think we've reached the top of the hour for today. So that concludes our call. As Jolanda mentioned, today is our last day for a physical registration for people willing to and I'm looking to come to the Netherlands for our Strategy Day. So I think one who hasn't registered yet, please reach out to the team today to do that. And we're very much looking forward to having you guys here for a couple of days, May 22, 23, and we'll see you out on the road tomorrow.
Frans Muller: Yes. We're working very hard as a team to make it a good use of your time. And not only during the meeting itself the four hours, but we also a sustainability session specifically. And we also show you around more of our businesses as well. That's the plan, right? Yes. All right. Good see you then.
Jolanda Poots-Bijl: Thank you. Bye-bye.
Frans Muller: Thank you, Sharon. Operator. Thank you very much.
Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.