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Jeronimo Martins, a prominent player in the European retail market with €36.54 billion in trailing twelve-month revenue and a market capitalization of €14.57 billion, experienced a 5.05% drop in its stock price following its Q2 2025 earnings call. Despite reporting a 6.7% increase in group sales and a 10.3% rise in consolidated EBITDA, market reaction was negative, possibly due to concerns over cash flow and competitive pressures. According to InvestingPro, the company maintains profitability with a gross margin of 20.55%.
Key Takeaways
- Group sales grew by 6.7%.
- Consolidated EBITDA increased by 10.3%.
- Stock price fell by 5.05% post-earnings call.
- Cash flow showed an outflow of €157 million.
- Market competition and subdued food consumption pose challenges.
Company Performance
Jeronimo Martins reported solid growth in sales and EBITDA, reflecting its strong operational performance in a challenging market environment. The company opened 196 new stores and launched Biedronka in Slovakia, demonstrating its commitment to expansion. However, the retail giant faces a challenging operating context with muted food consumption and intense market competition.
Financial Highlights
- Revenue: Not specified
- Earnings per share: Not specified
- Group sales growth: 6.7%
- Consolidated EBITDA growth: 10.3%
- EBITDA margin: Improved to 6.6%
- Cash position: €213 million
- Cash flow: Outflow of €157 million
- Dividends paid: €371 million
Market Reaction
Jeronimo Martins’ stock price fell by 5.05%, dropping from a previous close of 21.4. This decline places the stock closer to its 52-week low of 15.35, reflecting investor concerns over the company’s cash flow and competitive pressures despite positive sales and EBITDA growth.
Outlook & Guidance
Looking forward, Jeronimo Martins anticipates continued uncertainty in the market, with subdued food consumption and competitive pressures. The company plans to focus on price competitiveness, protect margins against personnel cost pressures, and slightly exceed €1 billion in CapEx.
Executive Commentary
"In these challenging times, we are reassured by our strong value propositions, competitive edge, and the competence and dedication of our teams," stated Ana Luisa Virginia, an executive at Jeronimo Martins. She further noted, "We continue to see a highly uncertain context and subdued food consumption."
Risks and Challenges
- Muted food consumption and low basket inflation.
- Intense market competition and consumer preference for value opportunities.
- Cash flow management with an outflow of €157 million.
- Personnel cost pressures impacting margins.
- Economic uncertainties affecting consumer spending.
Q&A
During the earnings call, analysts inquired about the dynamics of the Polish market, margin preservation strategies, and the company’s approach to inflation and competition. Executives addressed these concerns, emphasizing their focus on maintaining price leadership and strategic investments.
Full transcript - Jeronimo Martins SGPS SA (JMT) Q2 2025:
Conference Operator: Good day, and thank you for standing by. Welcome to the Jeronimo Martins First Half twenty twenty five Results Webcast and Conference Call. At this time, all participants are in listen only mode. After the speakers’ presentation, there will be the question and answer session. Please be advised that today’s conference is being recorded.
I would now like to hand the conference over to your speaker today, Ana Luisa Virginia. Please go ahead.
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: Thank you, Nadia. Good morning, ladies and gentlemen, and thank you for joining this call dedicated to our first half results. As usual, in our corporate website, you can find the results release, a slide presentation and a fact sheet for the period. As anticipated, in the first June 2025, we faced a challenging operating context that combined muted food consumption, low basket inflation, and rising wages. Despite the increase in salaries across the countries where we operate, families have in general kept cautious spending habits and a clear preference for value opportunities, particularly in what food is concerned.
Against this backdrop, market competitive dynamics continue to be intense. Prioritizing sales growth, we maintained our focus on providing the best prices and the best saving opportunities, which enabled us to retain consumer preference, increase the top line and gain further share. This sales growth coupled with stricter cost management and additional productivity measures more than offset margin pressure. In the period, we also registered good progress in our CapEx program, which is our first priority for capital allocation. And notably, despite the ambitious target set, if excluding IFRS 16, the group maintained a cash position of EUR213 million at the June after the payment of EUR371 million in dividends to its shareholders.
Looking now at the P and L, I’m going to focus on the six months of figures rather than the individual quarters as the timing of Easter this year skewed performance in Q1 and Q2 and doesn’t allow for a fair reading. I would like to flag a couple of things here. On sales, all banners delivered well, driving the group’s top line to grow by 6.7% or 6% at constant exchange rates. EBITDA was supported by sales growth and a balanced management of gross margin, costs and productivity. All in all, EBITDA grew 10.3% or 9% at constant exchange rates, and EBITDA margin was 21 basis points up versus the same period in 2024, reaching 6.6%.
The execution of the ambitious investment program is reflected in the evolution of both depreciation and net financial costs as the latter also includes the interest expense of capitalized leases. And finally, a word on the other profit and losses heading that includes indemnities, write offs and provisions, as well as the allocation of EUR40 million from the 2024 results to the Jeronimo Martins Foundation. Cash flow for the period was an outflow of EUR 157,000,000. This reflects the normal seasonality of the business as the first months of each year are strongly impacted by supplier payments following the peak Christmas season. To confirm, Q2 cash flow was positive.
I would like to make two additional comments. The first one regarding paid income tax, which in H1 twenty twenty five was substantially lower than in H1 twenty twenty four. This is because in Poland, advanced tax payments are usually based on results from two years prior with adjustments made after closing the fiscal year. This implies higher cash outflow in 2024, having in mind the strong results of 2022 and 2023. The second comment is on working capital flows, which reflect mainly the healthier growth dynamics of 2025 compared with 2024.
The group ended the quarter with a strong financial position and a positive cash position of EUR $213,000,000. Consistent with our long term vision of sustainable growth, and as I said earlier, the primary capital priority is executing our investment program, which focus on expanding operations and guaranteeing the quality of the infrastructure. In the first six months as of 2025, our banners combined opened 196 stores and remodeled 71 locations. I highlight here the launch of the Biedron Corporation in Slovakia with one DC and six stores opened so far, and the successful integration in Ara until the end of the period of 58 stores formerly operated by COL Soupsidio that are a great match to our expansion strategy. Looking now into the details of the performance, I will start with sales.
All banners delivered solid sales performance that resulted in EUR 1,000,000,000 more being added to the group’s total revenue over six months. Consolidated sales grew by 6.7%, 6% at constant exchange rates to reach billion, including a like for like of 1.6% and the contribution from expansion. Amid the refrained consumer backdrop and strong competition, Biedronka maintained its price leadership in Poland, delivering on its thirty year promise to the Polish families. In addition to its relentless promotional dynamic, the banner continues to work on the quality of its offer with its perishables and private label assortment standing out and on the standards of its infrastructure, having opened 81 new stores, 72 net additions and remodeled 34. All in all, sales grew by 7.1% to EUR 12,400,000,000.0 or 5% in local currency, and our base banner kept increasing its market share.
Like for like was 0.9% against the outstanding volume growth delivered in H1 twenty twenty four. In Q2, the like for like stood at a solid 5.3%, also supported by Easter. Hebe operates in a context that turned more price competitive, driving the banner to register substantial deflation in the basket. Sales increased by 9.4% or 7.3% in local currency to reach EUR $297,000,000. Over the period, nine Habit stores were opened in Poland, six NAT editions and one in Czech Republic.
Driven by the consistent execution of its well recognized promotional campaigns and the conversion of its stores to the All About Foods concept, PingoDoce grew sales by 5.7% to €2,500,000,000 and like for like, excluding fuel, was 3.9%. In the six months, our supermarket banner opened three stores and 24 additional locations were converted to the All About Food concept. Rucheil that continues to operate in a challenging context is investing to perform and has done well in the period, particularly in the ORECLA segment where the quality and assertiveness of its offer stands out. It is worth mentioning with respect to the comps that a year ago, the OREC sector started showing signs of slowdown. Against this backdrop that has been felt since then, Roche managed to increase its client base and to grow sales by 1.9% to EUR $657,000,000 with like for like standing at 1.6%.
In Colombia, Ara remained committed to its promotional agenda on top of its everyday low prices. The banner is successfully building its presence in the neighborhoods, gaining consumer preference and outperforming the market. Sales grew by 7% or 15.6% in local currency to reach EUR 1,500,000,000.0. Like for like was 5.3%. Its expansion is a strategic priority, and in the six months, Ara opened 96 new stores, of which 58 are part of a group of 70 locations formerly operated by COL subsidiary.
By the July, all these locations were already operating under the Ara banner. I highlight here that together with store expansion, Ara opened one new distribution center in the beginning of the year. Consolidated EBITDA grew by 10.3% or 9% at constant exchange rates to reach EUR 1,100,000,000.0. Overall, businesses delivered solid sales growth and ensured cost efficiency and higher productivity to compensate for the cost inflation. As we started 2025, we knew we would face margin pressure from the combination of persisting low basket inflation with salary hikes.
Adding to this, we anticipated a sluggish consumer context, driving more intense competition, which proved to be the case in the first six months of the year. Facing tough conditions while firmly committed to price competitiveness, all our banners increased their focus on efficiency and productivity. Following this strategy, we delivered strongly and group EBITDA margin was at 6.6%, up from the 6.4% registered in H1 twenty twenty four. At Piedronka, EBITDA margin was slightly up in the six months, driven by cost control and efficiency gains and also benefiting from easier gross margin comps through the first four months of the year due to the campaigns executed in 2024. At Hebe, price investment and a low like for like impacted by strong basket deflation significantly pressured EBITDA margin in the half year.
In recent months, company refocused its commercial strategy and tightened cost discipline, having been able to recover part of its margin. At Pingo Dos, an effective promotional strategy drove sales growth, which together with reinforced productivity measures, protected EBITDA margin. Shay, that in the same period of 2024 was heavily impacted by deterioration of the ORECA segment benefited this year from the mix comp, which coupled with sales growth allowed for EBITDA margin to recover in the period. Finally, in Colombia, Ara benefited from sound sales growth and from the work done in 2024 to recover margin using a mix effect. We expected a challenging first half.
As such, we took necessary steps to keep growing and protect profitability, having succeeded despite the tough comps. We also maintained our long term focus by consistently executing our investment program, expanding our market presence and enhancing our networks through remodeling initiatives and investment in logistics. Our market positioning were reinforced and we closed the period with a solid balance sheet. All things considered, we are proud of the work done by the teams in H1 twenty twenty five. Looking ahead, we continue to see a highly uncertain context and subdued food consumption.
Therefore, we will keep our strategy of pushing for price competitiveness while working to protect margins from the pressure of higher personnel costs and intense competition. All in all, we confirm the outlook for 2025 provided in March with a minor revision to the Biedronka’s remodeling plan, which was reduced to 100 stores. As a result, CapEx is now anticipated to be slightly above EUR 1,000,000,000. Thank you for your attention. Operator, I am now ready to take questions.
Conference Operator: And now we’re going to take our first question,
Unidentified Analyst: And it comes from the line of William Woods from Bernstein. Your line is open. Please ask your question. Excuse
Conference Operator: me, William?
Unidentified Participant: Hello? Hi. Can you hear me okay?
Conference Operator: Yes. We can hear you now. Thank you.
Unidentified Participant: Perfect. Hi.
William Woods, Analyst, Bernstein: Good morning. Thanks for taking the questions. I’d like to focus on Poland, if that’s okay. The tone of your commentary in the release is obviously quite conservative. And last time we spoke, you seemed slightly more cautiously optimistic.
Would you say that things are getting better or worse in Poland at the moment? Then the second one is, obviously, the number of promotions in the Polish market seem to have come down quite a lot in terms of the multi buys and things like that. Are you seeing any softening of that competitive environment? And is it more about passing on inflation versus promotional intensity at the moment? Thanks.
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: I will. So it’s it’s true that we tend to be be very conservative, but it’s also true that the environment continues to be very uncertain and and and volatile. And we have and that, of course, translates also in the dynamics. As you probably seen, the food retail markets continues to be quite muted in terms of at least in constant terms, it hasn’t grown much in Poland. I think that we cannot say that the promotions have softened.
What we have, I would say, as a positive, at least for the operations overall, as we are no longer operating in deflation. That is, as I mentioned last year, the worst positioning to be in because, of course, you work more, you have more costs trying to drive volumes, and some of the times you cannot compensate for that. The fact that we are now operating, it’s true with low basket inflation because, of course, we have to consider that our sales is is are without VAT. And and you know that the inflation for the consumer also accounts for for for VAT, and and we have since April, last year, the the return of the VAT on the essential products, and it’s only, made now the annual, in April this year. So we know that we have to even be more promotional and really be very aggressive in the 2024 versus what happened this year because of that situation.
So it’s not a question of passing inflation because we maintain our competitiveness. It’s really all the dynamic of the market that, of course, tends to be slightly easier when we are not operating in deflation, particularly considering that we have and we continue to have inflation, at the at the cost level. So I would say that we are not really seeing a pickup. So if it’s better or worse, I think it’s it’s relatedly stable. But, at the moment, what we don’t see is really a trade up or, a lot of, of, let’s say, drivers, contributing to sales in the market overview.
This being said, I think that’s, what, Biedronka did considering all the circumstances, and I’m talking not just the comparable, but of course, some even some of our peers and other players mentioned, it’s true that q two had several, different factors. It’s not just the positive Easter. It’s also a worse weather that, of course, affects some of the main categories in in Biedronka. But all in all, I think that in relative terms, Biedronka performed very well. Five years growing more than 1.2 on average in market share, it continues to deliver market share growth.
And I think this is really a terrific and remarkable performance done by our teams in Poland.
Unidentified Participant: Excellent. Thank you very much.
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: Thank you, Will.
Conference Operator: Thank you. Now we’re going to take our next question. And it comes from the line of Rob Joyce from BNP Paribas. Your line is open. Please ask your question.
Rob Joyce, Analyst, BNP Paribas: Hi, good morning. Thanks very much for taking the questions. I might go with three. First one, just in Biedronka. Just could you give us the, inflation and the volume split of that like for like, and also just give us the market share, increase that you just referenced?
That’d be great. Second one is just looking into the back half of this year, given the comps get a bit harder, is 5% like for like that you did in February, is that kind of achievable in the back half of the year, or does that look a look a challenge given all the the market the the challenges laid out? And then finally, just in terms of the margin trajectory, is it fair to say that the gross margin was kind of flat in Biedronka in the second quarter? And is that the sort of right way to look at it into the second half of the year as well? Thank you.
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: Thank you, Rob. So in terms of volumes, and I will speak about, of course, the first half. Because as I said, there are a lot of different drivers influencing sales. And and I think it’s not fair to look even with the calendar effects. I think it’s we should not really look quarter on quarter, but really on the, on the year to date.
So on on volumes, it was slightly flattish. And of course, then you have a different, you have also the inflation, but also some mix effect. So last year, as we invested a lot in on certain categories, you also, managed to, to have some effect on sales coming from from the mix. On the on like for like for H two compared with H one, of course, I think that’s, it’s going to be very challenging on the volumes. It will continue to be, definitely.
But I would say that it’s slightly less challenging than in first half. But of course, again, we will have to, take into consideration a lot of factors. So one, of course, is the consumer. And and again, the pickup and and the willingness, to increase or not, their their food spending. The other one is we we have, we have to flag that.
It’s true that other factors also affect like for like, and one of the as I mentioned, is even the weather that in July has turned better than in June and May. Apparently, Poland is not having really a summertime, and that influences most of the categories that that are not just like for like driven. They are also margin driven. And, so I think, all in all, I expect to have a better, like for like. And I know that the teams will do all their best to deliver, the like for like, but, than the one posted in h one.
But, I would say that a five a 5% like for like, as in q two that had the impact of Easter, I think it’s, it’s really very, very challenging. So, it’s on, let’s say, on the more optimistic side, which I think it’s not really the normalized, growth. On the margin trajectory, again, I would refrain from, trying to compare q one and q two. You have really a lot of factors influencing not only sales, but also gross margin and costs. For instance, we made some reviews on the remuneration in Q2 that are some updates that are take place in Q2 that, of course, affect also the cost.
This, of course, was somehow compensated by the increase in productivity. For HH two, we have to take into consideration that this, again, will depend how sales will progress, but also, on the mix will progress because that will help. So I don’t think that on gross margin, Biedronka will have a lot of drivers to increase it. I think it will maintain competitiveness. We don’t see a softening in the markets as was asked by William.
I think that our players continue to be quite intense because of the same circumstances, high cost inflation with low or with inflation not really being a main driver of sales really leads the market to be quite competitive. So it’s true that, as I said, deflation would be even worse. Low inflation is not the worst scenario and backdrop for us. But this being said, I think it continues to be not a given that although usually sales in second half are higher than in the first half, that we will not have also our challenges in margin and on the cost side, of course, because we are doing, of course, all that we can to compensate for a 9% increase in salaries as a proxy for Biedronka. But and of course, as I said, the team will do its best to also protect profitability, but we won’t we won’t lose it, or or we want that to happen at the expense of competitiveness and relevance for the market.
Rob Joyce, Analyst, BNP Paribas: Thank you. And just the market share, just an idea of what the increase in market share was in the period?
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: So for the year currently, it’s 0.2 percentage points to Cumulative. Yes. Cumulative to May. So we don’t have still the the June numbers, but cumulative to May was an increase of 0.2 percentage points.
Jose Rito, Analyst, Caixabank: Okay. Thank you.
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: No. Thank you, Rob.
Conference Operator: Thank you. Now we’re going to take our next question. And the question comes from the line of Jose Rito from Caixabank. Your line is open. Please ask your question.
Unidentified Analyst: Yes. Good morning to all. So I have three questions on Poland. So the first one, you mentioned that in May, June, there were some weather effects that had an effect on on some categories. Do you have any potential impact on on the like for like because of these potential effects?
The the second question is related to the fact well, in h one, like for like was 0.9, and margins went up by around 10 basis points. Given that the like for like is expected to be stronger in the second half of the year, could we could could you assume that the the 10 basis points margin at least versus last year could be a floor? And finally, if you are seeing any signs of potentially trading up in the market in Poland. Thank you.
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: Thank you, Jose. I’m sorry that but of course, we do not disclose. We analyze it quite and monitor quite closely, but we do not disclose the like for like per category. That would be information that is quite relevant for us. But to let you know, of course, this is an effect that is, in related terms, affects all the players.
So in in we have to just take into consideration that, of course, in absolute terms, it influences ourselves, and that’s why we are flagging it. Because usually, we look also from a relative point of view. But as growth is now, quite, more challenging, of course, every, aspect may may affect, and and that’s why we are flagging it. Usually, we don’t hire or give as as excuse because the bad weather is for all the players and not just for us. The this being said, it’s true that, the way that we are seeing at least for the month of July, it also influences, and of course, it will influence, the like for like at least of those categories.
On the EBITDA margin, considering the like for like of 09% and a growth that we expect in principle on the like for like for the second half. What I think is that, of course, again, when we are talking about such a material contribution to our consolidated from Biedronka, any minor bps in our EBITDA margins is important. Of course, you know that most of the times, our main driver for profitability is sales growth and not really on the margin part. And that’s why I flagged so I consider that a flattish margin is a good performance, plus 10 bps, more than 10 bps is, of course, maybe important. But overall, the most important for us is not really losing any competitiveness.
So we know that we have, let’s say, some easier comps in the second half, but we also have to take into consideration that we will continue to be pressured on the cost side, and and and we will not refrain from doing what we have to do even with because, of course, labor is currently the one that is pressuring more, but we know that we need our colleagues in the stores to really also deliver on the sale parts. And if so, we will not refrain from doing even the collections or pay the bonuses that we have to if they meet their targets and really deliver the sales. So this, to be said, that we will try, of course, to get all a quite stable margin for the future at least, but, it will not be, or any increase will not be at the expense of competitiveness or at the expense of being unfair to colleagues. In terms of trading up, I would say, that, as as I mentioned, we don’t really see any pickup in in food consumption, currently. There is a pickup in consumption, but in in certain durable goods, in entertainment, in in in traveling, and not really on food.
I think that’s yet, at least, we are not seeing. Of course, part of that is probably the dynamics also of the market. The fact that everybody is really pushing for sales, it’s it’s it’s it means that the market is quite competitive. And maybe sometimes when there is a slight trade up, there is not much margin to really promote, let’s say, the more value added products when when you are in a very competitive, dynamic on the market.
Unidentified Analyst: Okay. Thank you, Eine.
Conference Operator: Thank you. Now we’re going to take our next question, and it comes from the line of Frederic Wiles from Jefferies. Your line is open. Please ask your question.
Unidentified Participant: Good morning, Ana Luzad. Thank you for taking my questions. Three, if I may. First of all, just returning back to that beer drunker basket inflation point. It obviously accelerated quite a lot in q two.
How if I look at the industry data, it seems that some of that, you know, those improvements in inflation have now stopped. So can I ask, has your basket inflation in Biedronka now reached a sort of stable level? Second, on free cash flow. There are obviously lots of moving parts and one offs as you are identifying in your remarks. Could you help us understand and model perhaps those free cash flow dynamics in half two?
And then finally, turning very briefly away from Poland, you also had a quite surprising level of improvement in the ARR margin. How much of that was driven by the integration of Colfer Colfer’s Sosidio? Forgive my Spanish pronunciation there. Could you give us an idea of what the margin was ex that integration? How to think about it again for half two?
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: So we are talking in h one of around 2%. So this is the level that we think that it’s more or less what what we were more or less expecting. And but, again, the most important for us is really, to maintain competitiveness. And and this, of course, as I said, this is 2% in net terms. So we are not talking about gross sales, not taking into consideration the fact that, of course, for the country inflation, you also have the effect VAT.
And on the free cash flow, I would say that for H1, so the dynamics this year, you have, first of all, of course, the fact that you are, again, growing sales on in in absolute terms in in a much, let’s say, strong growth, so above the 5% for the group, that brings the dynamic not only, in terms of, of course, helping to dilute the cost inflation, but also, as you know, on the working capital front. And this is I think it’s it’s quite visible already taking it out the effect of the calendar that took place between the Q1 and Q2 on accumulated terms. I think it’s already visible, a positive contribution from or at least not positive, but less negative from the fact that this a slowdown in growth really has a negative impact also on the on the working capital. This this being said, there was also a big effort from our teams all over and particularly in Pingo Dos, but also in in or particularly in in Biedronka, but also in in Pingo Dos, Shayw and and Ara to really reframe any cash outflow that would not be necessary. And that’s why I mentioned even the tax payment that was quite significant last year compared with the corporate income tax of the year because of this this delay on what is considered unpaid.
And our team, our financial team in Poland this year managed to basically start doing advanced payments based on their real income, considering correction on the results that took place last year, instead of being paying on the prior two year net earnings, which would be 2023, as you know, when if when inflation was peaked and then and there was this also this peak in the in the earnings, particularly of of Biedronka. For h two, so we are assuming that we know that we are investing quite significantly, so we have our CapEx payments to take into consideration. We have already paid our dividends. So in principle, all things maintained and not having any slowdown in sales, what we assume on the contrary, what we assume is that we’ll have a positive contribution at least from the working capital. And that dynamic, of course, will work will help with the cash flow.
But we will as you know, we will continue to invest. And so we have to take into consideration also the CapEx heading affecting our cash flow. On the improvement of Ara, in fact, this started, as you probably noticed last year. So it was made a huge effort and a terrific work by our commercial teams to really rebuild the margin and adjust the mix to protect the profitability in the country without hampering the competitiveness. And so we are still seeing versus last year in this first half a progression on the gross margin compared with last year.
So this was done throughout the year. Of course, it will take a little bit more it will be a little bit more challenging on the second half. But this being said, that contribution of the new stores, and particularly of co subsidiary, which are good stores located in neighborhoods with high income, which we expect also to contribute, of course, positively. This was very marginal in the first half. So we’ll have two effects, in fact, this and the rest.
So we expect the company to continue to progress and to deliver a good EBITDA margin despite the challenges, of course, of the market. But the fact is that overall, the economy, at least in terms of consumption, is even better than in Poland in terms of food consumption. So, it’s true that, what we are assuming is that, the work done in Bayada, will also give its fruits for the for the second half.
Unidentified Participant: That’s perfect. Thank you so much.
Conference Operator: Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad And now we’re going to take our next question. And the question comes from the line of Matthew Clarence from Barclays. Your line is open. Please ask your question.
Jose Rito, Analyst, Caixabank: Good morning. Thanks for taking my question. Sorry, let me go back to the beer drunker margin, if that’s okay. So you said in March that you expected margin contraction this year, though less than the 85 basis points last year. You said that that contraction would be concentrated in the first half.
By May, that that tone had improved, and discussion on the call was more around the the possibility of stable margins this year. Having now delivered 13 basis points, in the first half, my first question is what was the key driver of that outperformance relative to your expectations? And the second question is given you expect better like for like growth in the second half, understand and your need to signal your commitment to price competitiveness, but is there any reason why we shouldn’t expect a more material margin expansion in the second half? Thank you.
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: Thank you, Matthew. True, because, of course, as you may, we also started our outlook saying that there would be a lot of elements of volatility in the market, not only, the question of how the markets and the food retail market would progress, but we have to take into consideration also all other drivers, and and even the how the cost inflation would would be dealt with the companies. Of course, we knew that we would have, to put in place the measures, but there is the limit, of course, to what we can do to compensate for, a proxy of, more than 9% labor increase in Poland. And so, in principle, if you have costs growing more than than than sales, you’ll have, of course, a lower margin. And and so our assumption was how we will manage and what will happen up in the top line, which is does not depend just on us.
It depends on the consumer and depends also on on the other players and on the intensity of competition in the markets. And so that’s why we assume that there would still be pressure because all the cost inflation that we expected, it there was the risk of not being able to compensate for that. It’s true that, compared with last year, the fact that, again, not working in deflation, but with, with inflation as a driver of sales, even if lower compared to the cost inflation, really helps, with that. This being said, for the for the second half, as it’s as as it’s true, we expect, of course, in principle, And and as I said, the the the our teams will work to have a a better like for like. And, and this, of course, may allow for a cost dilution if everything stays the same, But we have to consideration that they have to take into consideration, of course, the comparable also in terms of margin that is a little bit more challenging for the second half.
And and in terms of cost, again, we’ll do our best, but it will not be without, of course, or forgetting that part of the contribution on sales growth will also come from our our colleagues at the store level and in Biedronka. So this may also bring extra pressure for the cost parts. So I think it’s possible to maintain now, I see as more probable a flattish margin than before, definitely. But I wouldn’t see the progression of the first half as really a given that now we are going to even improve more in the second half.
Jose Rito, Analyst, Caixabank: Okay. That’s good. Thank you. And just to sorry, just to follow-up on the first part of that question that answer. So are you saying that relative to your budget or your expectations at the beginning of the year, the market in the first half was more rational or less competitive?
Or was it more that the consumer was, less subdued than you’d anticipated? Which which would you say was the more key driver of outperformance relative to your concerns and expectations?
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: I think that in in fact, what really helped compared with last year was was, as I mentioned, the fact that you were not, working in deflation. So it’s true that if you are having, some inflations and and and, of course, it really helps, at least and and as I said, it’s an inflation, but it’s it’s not, without losing any competitiveness. And, and so we we have really a tough comparison versus last year or sorry, an easier comp last last year because as you may remember, we had even, a high single digit, deflation in the first, in the first quarter.
Jose Rito, Analyst, Caixabank: Okay. Thank you very much.
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: Thank you.
Conference Operator: Thank you. Now we’re going to take our next question. And the question comes from the line of Luis Colasso from JP Capital. Your line is open. Please ask your question.
Excuse me, Luis. Your line is open. Please ask your question.
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: Luis, are you on mute?
Jose Rito, Analyst, Caixabank: Yes. Can you hear me?
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: Now, yes. Now, yes.
Jose Rito, Analyst, Caixabank: Sorry. Yes.
Luis Colasso, Analyst, JP Capital: Sorry for that. Just on the on the margins and the OpEx and and gross margins, do you think it’s it’s fair to assume that you can achieve the same type of OpEx performance in the second half that you achieved in the first half? And also in terms of gross margin, is it fair to assume in the second half the same gross margin that we are assuming for the first half? Thank you very much.
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: Luis, this is quite tricky because it’s really as I as I mentioned, it really depends on the on the dynamics. I think that’s, as as, as I mentioned, It’s a fair assumption in the sense that you should not really assume that we will grow much the gross margin. As I mentioned, H2, in terms of comparison for Ara, which was the main contributor in terms our banners are really making sure that they are competitive related to their peers and to the other players. This being said, of course, this will depend a lot on the overall consumer and clients in the case of Xue, because it’s true that we have a better mix that really protected profitability at the gross margin level even on the other banners. So assuming the same gross margins, it’s a possibility.
But again, it will depend the progression will depend on how the market will behave, not only in terms of consumer, but in terms of competition. On the OpEx and so on the EBITDA margins, again, we have we are doing all our best, and it’s true that on the positive as a tailwind, some of the measures that we took in the first half will continue for the second, but we also have other pressure items in all the cost the cost headings that we’d have to take into account. And namely, I mentioned some reviews of our remuneration take place in the second quarter, not in the beginning of the year. So for cashiers, usually, we do the increases in January. But for the others, usually, these take place in April, May.
And that, of course, then it will pressure much more the second half.
Unidentified Participant: Thank you very much. Thank
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: you, Vish.
Conference Operator: Thank you. Now we’re going to take our next question. Just give us a moment. And the question comes from the line of Antonio Saladis Saladis from AIS Independent Research. Your line is open.
Please ask your question.
Unidentified Participant: Hi. Good morning. It’s it’s the question is, again, related with this this issue of margin. So taking into consideration your first and second quarter, and I know that you prefer to analyze the first half. Nevertheless, when your sales growth improve above your operating expenditures, your your your your EBITDA margin improves a lot.
So so that that is what that is your main issue now. Right? Because OpEx, operating costs are growing well, staff costs about 9%, and you fear that do not form in line, and so that impacts your your your your your margin. So is that summing up, is that your main issue? Just to confirm.
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: Antonio, of course. So we are highly leveraged from the operational side. So any growth extra growth in sales, of course, helps to dilute the cost and to deliver a better EBITDA. But when it happens the other way around, when costs increase more than sales, of course, this puts an issue, of course, to our margin. So that is the question.
So we continue. And of course, compared with last year, we continue to have growth in the costs. And this is, let’s say, common to all our banners. So we don’t pay the minimum wage in our in our to our colleagues. We have a gap, quite significant gap in all countries, but we have it as a proxy.
So we have to take into consideration. So if you look at the minimum wage increases this year, we are talking about the high single digit in all geographies, in fact, including Poland with more than 9%, in Portugal, more than 7%. And of course, if you are increasing sales less than that, which is the case, we know that we have to compensate for that, and that is, of course, our main issue. But this doesn’t mean that the fact that things are increasing or labor costs are increasing. Of course, we need to have people to work.
We have to have motivated people to continue to strive to grow sales and to serve our our clients and and assure the the the the presence of our clients that continue to choose our stores. And so this is a difficult balance, we have to somehow manage, and that is challenging. It’s growing sales and putting in place measures or take decisions that somehow take a balanced approach and and protect profitability also.
Unidentified Participant: Thank you very much. I’m sorry to to, well, just to do this, to ask you for this comment. Thank you very much.
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: Oh, no. No. Thanks. Nothing to be sorry about, Antonio. Just a clarification.
Of course, thank you.
Conference Operator: Thank you. Dear speakers, there are no further questions for today. I would now like to hand the conference over to Ana Luisa Virginia for any closing remarks.
Ana Luisa Virginia, Executive/Spokesperson, Jeronimo Martins: I conclude by saying that in these challenging times, we are reassured by our strong value propositions, competitive edge and the competence and dedication of our teams. This combination is truly the base of our sustainable competitive strength. With several major investment projects set to be launched by year end, we remain focused on meeting consumer needs, adjusting as necessary to uphold our promise of quality and price. Thank you for your questions and for attending this conference call. I wish you all a nice day.
And if it is the case, a pleasant summer break. Thank you.
Conference Operator: This concludes today’s conference call. Thank you for participating. You may now all disconnect. Have a nice day.
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