Earnings Call: Axfood Reports Mixed Q3 Results Amid Market Growth Environment

image

Earnings Call: Axfood Reports Mixed Q3 Results Amid Market Growth Environment

In the third quarter of 2024, Axfood (AXFO), a leading player in the Swedish food retail sector, reported a retail sales growth of 3.5%, slightly below the market's 3.6% increase. The company's CEO, Simone Margulies, who took office on August 15, 2024, presented these figures during the earnings call. Despite growth in sales, Axfood faced a decline in adjusted operating profit and challenges such as cost inflation and restructuring expenses. Nonetheless, Axfood continues to expand its store network and recently approved the acquisition of City Gross to strengthen its position in the hypermarket segment.

Key Highlights:

  • Axfood's Q3 retail sales grew by 3.5%, with a two-year growth of 10% outperforming the market, which was at 17%.
  • E-commerce sales rose by 10.2%, now representing 4.8% of total consumer sales.
  • Adjusted operating profit declined, with an operating margin of 4.8%.
  • Axfood's brand Willys reported a 3.8% sales increase but suffered a profit decrease due to price investments and cost inflation.
  • Another Axfood brand, Hemköp, achieved a 4.5% same-store sales growth and an increase in operating profit.
  • In the first nine months of 2024, net sales exceeded 62 billion SEK, increasing by 3.1%, though operating profit excluding comparable items fell by 4.5%.
  • Axfood's net debt ratio remained steady at 2.3%, with an equity ratio of 23.7%.
  • The acquisition of City Gross is expected to enhance Axfood's competitiveness in the hypermarket segment.

Company Outlook:

  • Axfood plans to open more stores and is on track to meet its annual investment guidance.
  • The company is committed to increasing market share and ensuring long-term competitiveness.
  • Axfood is enhancing operational efficiency with a new IT platform and logistics structure, having completed frozen food transfers to the new facility in Bålsta.
  • Sustainability efforts resulted in a reduction of over 40% in transportation carbon footprint compared to the previous year.

Negative Highlights:

  • Operating profit excluding comparable items dropped by 4.5% to 2.7 billion SEK due to restructuring costs and increasing personnel and rental expenses.
  • Cash flow for Q3 was negative 358 million SEK, primarily due to net working capital issues.
  • Axfood faces intensified competition, particularly for Willys, leading to increased customer loyalty and volume.

Positive Highlights:

  • Axfood's net sales grew by 3.1% in the first nine months.
  • The company achieved a strong 4.5% same-store sales growth with the Hemköp brand.
  • The acquisition of City Gross is expected to strengthen Axfood's market position in the hypermarket segment.

Underperformance:

  • Consolidated net sales grew by 3%, but adjusted operating profit decreased to approximately 1 million SEK.
  • Willys experienced a profit decline to 556 million SEK due to price investments and cost inflation.

Q&A Highlights:

  • Willys maintains its commitment to being Sweden's cheapest grocery option.
  • Axfood expects annual savings of 300 million SEK to 400 million SEK from the planned closure of parallel warehouses.
  • Cost pressures related to rents and salaries are concerning but are hoped to stabilize due to falling global food commodity prices.
  • For City Gross, a post-acquisition impairment of 120 million SEK to 160 million SEK is expected in Q4 due to valuation adjustments.

Axfood's earnings call presents a company facing both challenges and opportunities. With the recent acquisition of City Gross and a focus on efficiency and sustainability, Axfood aims to strengthen its market position while managing the complexities of cost inflation and intense competition. Investors and stakeholders will closely monitor the company's efforts to fulfill its promises and maintain a strong financial standing in the upcoming quarters.