Summary of key financial data
Comments from Frans Muller, President and CEO of Ahold Delhaize
"The agility and flexibility that our brands and associates are showing, adjusting quickly to meet customers’ needs while, at the same time, diligently staying the course on our various transformation projects, underpinned the company's strong performance this past quarter. All these efforts remain particularly important as the external environment continues to be dynamic. I am proud of the resilience our brands' associates continue to demonstrate in the face of climate impacts, such as the fires in Greece, and the widespread rise in social tensions, which are, unfortunately, leading to more incidents in stores.
"On a positive note, we see more evidence that inflation has passed its peak. For customers, our great local brands have swiftly reflected price decreases, where possible. For our brands' operations, inflation remains at more elevated levels, due to higher energy, commodity, transport and labor costs, all of which are having a particularly notable impact on our European margins. Nevertheless, at a Group level we were able to deliver a consistent performance from the top to the bottom line, with comparable store sales excluding gas up 4.6% and diluted underlying EPS increasing by 4.7% in Q2.
"In the U.S., Q2 comparable sales grew by 4.0%, excluding the impact of weather and calendar shifts. Powered by growth in loyalty sales and increasing online penetration, we were able to more than compensate for the negative headwinds related to a reduction in the SNAP federal assistance program and moderating inflation rates. Food Lion and Hannaford, in particular, continue to see strong market share gains as both brands further elevate their omnichannel capabilities. In aggregate, e-commerce penetration in the U.S. reached 8.1% for the first half of the year. We also continue to take concrete actions to orient our online fulfillment capabilities toward same-day delivery models. In line with this, we will close a facility in Jersey City, New Jersey, effective March 2024, utilizing our existing Stop & Shop store network and partners to service customers in this catchment area going forward.
“In Europe, excluding the impact of strikes in Belgium, comparable sales were up 7.6%. A key highlight of the quarter was a very strong performance in online retail. At bol.com, Gross Merchandise Value (GMV) grew by 10.5% to €1.4 billion. At Albert Heijn, we crossed the 800,000 mark for premium subscribers and continue to see improvements in e-commerce profitability. While underlying operating margin was down 0.2 percentage points at 3.2% in the quarter, excluding the impact of inflated energy costs and the effects on Delhaize Belgium from our operating model transformation, underlying operating margin exceeded prior year levels. When it comes to the initiative at Delhaize, I am confident the management team is on the right track and we expect the first fifteen stores will begin converting in October and November.
"We remain dedicated to making progress on our sustainability ambitions and are proud to share that we have achieved an AAA rating from MSCI. Being categorized into the highest-scoring range indicates that Ahold Delhaize is a leader in the industry in managing its most significant sustainability challenges and opportunities. Another major achievement was bol.com's attainment of B Corp Certification. With 13 million customers and 52,000 local sales partners, we are proud that an e-commerce platform of bol.com's size has achieved this recognition. The brand’s commitment to taking customers and sales partners along on its journey aligns perfectly with Ahold Delhaize’s goal to make healthy and sustainable choices easy for everyone.
"Our focus on striking the right balance between investing in growth and creating opportunities to drive operational excellence continues to fuel the positive outlook for our company. I am, therefore, pleased that we are in a position to increase our free cash flow guidance for 2023 to a range between €2.0 billion and €2.2 billion and reaffirm the rest of our guidance for the year. With our strong culture, known for its agility, ability to drive transformative change and commitment to sustainability, I am confident we are well prepared to navigate the complexities of the current business environment and position the company to drive brand strength and market share growth in the coming periods."
Q2 Financial highlights
Group highlights
Group net sales were €22.1 billion, an increase of 4.3% at constant exchange rates, and up 2.9% at actual exchange rates. Group net sales were driven by comparable sales growth excluding gasoline of 4.6%, partially offset by lower gasoline sales. Strikes at Delhaize Belgium, and, to a lesser extent, weather and calendar shifts, had a negative net impact on Q2 Group comparable sales of approximately 0.7 percentage points.
In Q2, Group net consumer online sales increased by 9.3% at constant exchange rates, due to robust growth at bol.com, which has now fully lapped COVID-19-related comparisons. Group online sales in grocery increased 6.2% at constant exchange rates.
In Q2, Group underlying operating margin was 4.1%, consistent with Q2 2022 at constant exchange rates. Favorable insurance results offset margin declines in the U.S. and Europe. Excluding the impacts of inflated energy costs and strikes at Delhaize Belgium, underlying operating margin exceeded the prior year's results.
In Q2, Group IFRS-reported operating income was €724 million, representing an IFRS-reported operating margin of 3.3%, mainly impacted by charges related to the transformation in Belgium and other Accelerate initiatives, including impairment charges for store assets in Belgium (€108 million) and for the Jersey City fulfillment center (€40 million). Additionally, there were €40 million in restructuring and related costs pertaining to these initiatives.
Underlying income from continuing operations was €601 million, an increase of 1.3% in the quarter at actual rates. Ahold Delhaize's IFRS-reported net income in the quarter was €468 million. Diluted EPS was €0.48 and diluted underlying EPS was €0.62, up 4.7% at actual currency rates compared to last year's results.
In the quarter, Ahold Delhaize purchased 11.7 million own shares for €355 million, bringing the total amount to €561 million in the first half of the year. The 2023 interim dividend is €0.49, up 7% versus the prior year, and in line with the Group's interim dividend policy.
U.S. highlights
U.S. net sales were €13.6 billion, an increase of 2.7% at constant exchange rates and up 0.3% at actual exchange rates. U.S. net sales were driven by comparable sales growth excluding gasoline of 3.6%, partially offset by lower gasoline sales. Excluding the impact of weather and calendar shifts, U.S. comparable sales growth was 4.0%, partially offset by the end of emergency SNAP governmental benefits and the moderation of inflation rates. Food Lion and Hannaford continue to lead brand performance. Food Lion delivered its 43rd consecutive quarter of positive sales growth.
In Q2, online sales in the segment were up 6.6% in constant currency, driven primarily by double-digit growth at Food Lion, which opened over 100 additional click-and-collect locations compared to the prior year.
Underlying operating margin in the U.S. was 4.6%, down 0.1 percentage points at constant exchange rates from the prior year period. In Q2, U.S. IFRS-reported operating margin was 4.2%, mainly impacted by an impairment charge in the amount of €40 million for the Jersey City fulfillment center related to the Accelerate initiative.
Europe highlights
European net sales were €8.4 billion, an increase of 7.0% at constant exchange rates and 7.4% at actual exchange rates. Europe's comparable sales increased by 6.3%.
On March 7, Ahold Delhaize's Belgian brand, Delhaize, announced its intention to transform all of its integrated supermarkets in Belgium into independently operated Delhaize stores to strengthen its position in the country's competitive retail market. Ahold Delhaize supports the intention to transform to one aligned operating model, which will allow the brand to better serve customers in the long term. By having all stores operated by local entrepreneurs in the future, Delhaize will have a better opportunity to respond to local conditions. Following the announcement, Delhaize Belgium has been impacted by strikes. Excluding the impact of strikes in Belgium, Europe's comparable sales increased by 7.6%.
In Q2, net consumer online sales increased by 10.8%. Online sales in grocery increased by 5.3%. At bol.com, gross merchandise value ("GMV") was €1.4 billion, an increase of 10.5% compared to the prior year. Bol.com's GMV sales from its nearly 52,000 third-party sellers increased by 13.3% in Q2, and represented 66% of sales.
Underlying operating margin in Europe was 3.2% in Q2, down 0.2 percentage points from the prior year mainly due to the impact of escalating energy costs and strikes at Delhaize Belgium. Excluding these impacts, underlying operating margin in Europe exceeded the prior year. Additionally, the non-cash service charge for the Netherlands employee pension plan decreased €15 million as a result of higher discount rates in the Netherlands. Europe's Q2 IFRS-reported operating margin was 1.6%, mainly impacted by costs incurred in Belgium related to the affiliation of stores, including an impairment charge in the amount of €108 million for store assets and €26 million for restructuring related costs.
Outlook
Despite a dynamic external environment, Ahold Delhaize is increasing its free cash flow guidance for 2023. We now expect free cash flow in a range from €2.0 billion to €2.2 billion. This change reflects our ongoing solid and consistent operating cash flows, inflows related to the collection of a tax receivable in Belgium and outflows related to the delivery of various projects identified as part of our Accelerate operational efficiency initiative. This initiative was launched in Q4 2022 to evaluate additional savings and efficiency levers to streamline organizational structures and processes, optimize go-to-market propositions, increase joint sourcing and consolidate IT – with a clear priority to unlock resources to accelerate our Save for Our Customers program, support our ambitions to achieve e-commerce profitability, and focus investments on high-return projects.
Ahold Delhaize reiterates the rest of the Group's 2023 outlook, which we announced when we published our Q4 2022 results. Underlying operating margin is expected to be ≥4.0%, in line with the Company's historical profile. Underlying EPS is expected to remain at around 2022 levels at current exchange rates. Net capital expenditures are expected to total around €2.5 billion, with increased investments in digital and online capabilities as well as healthy and sustainable initiatives focused on reducing our climate impact. In addition, Ahold Delhaize remains committed to its dividend policy and share buyback program in 2023, as previously stated.
- Excludes M&A.
- Calculated as a percentage of underlying income from continuing operations.
Management remains committed to our share buyback and dividend programs, but, given the uncertainty caused by the wider
- macro-economic consequences of the war in Ukraine, will continue to monitor macro-economic developments. The program is also subject to changes resulting from corporate activities, such as material M&A activity.
