Ahold Delhaize (AD.AS), the international food retail group, has announced solid second-quarter results for 2024, highlighting a modest increase in net sales and a commitment to strategic investments in its "Growing Together" plan. The company's net sales grew by 0.7% to EUR 22.3 billion, with an underlying operating margin improvement of 10 basis points from the previous year. The interim dividend was raised to EUR 0.50, marking a 2% increase. The earnings call also detailed plans for organic growth, store remodeling, and a significant investment in price competitiveness across US brands.
Key Takeaways
- Ahold Delhaize's net sales increased by 0.7% to EUR 22.3 billion, with an improved underlying operating margin.
- Group online sales rose by 3.4%, despite the divestment of FreshDirect.
- The company is enhancing customer experience and investing EUR 1 billion in price competitiveness for US brands from 2025 to 2028.
- An interim dividend of EUR 0.50 per share represents a 2% increase from the previous year.
- Share buyback program resulted in 18.3 million shares repurchased for EUR 501 million.
- Sales in Europe outperformed the US, with a 4.3% increase and online sales growth of 9.3%.
- The end of tobacco sales in the Netherlands is expected to negatively impact sales in the second half of the year.
- Free cash flow for Q2 was EUR 378 million, a decrease due to timing differences.
- The company remains committed to its 2024 outlook and strategic growth initiatives, including the upcoming Profi acquisition.
Company Outlook
- Ahold Delhaize reiterates confidence in meeting its 2024 commitments.
- The strategic focus includes growing market density, enhancing brand momentum, and capturing new opportunities in the CSE region.
- The "Growing Together" strategy aims for 4% growth and a 4% European margin by 2025.
Bearish Highlights
- Net sales in the US declined by 1.5% to EUR 13.6 billion, with online sales down by 2.9%.
- Q2 free cash flow decreased compared to the previous year due to timing differences.
- The cessation of tobacco sales in the Netherlands is anticipated to negatively affect future sales.
Bullish Highlights
- Online sales in Europe surged by 9.3%, with the underlying operating margin in the region improving by 50 basis points.
- The company is receiving strong support from vendors, which is expected to continue and drive volume growth.
- Positive trends in volumes and vendor support underpin confidence in market position and financial targets.
Misses
- Overall volumes in the US were slightly negative.
- The deconsolidation of sales at Stop & Shop and the impact of store closures were acknowledged.
Q&A Highlights
- Vendor allowances are trending towards pre-COVID levels and are a regular part of the business.
- The company plans to advance Stop & Shop and chain price investments to 2024.
- Confirmation of the Profi acquisition expected to be finalized in Q4 of the current year.
Ahold Delhaize's CEO, Frans Muller, assured that the guidance for the remainder of 2024 remains unchanged and expressed confidence in the company's strategic initiatives and financial health. The company's focus on strengthening its digital proposition, loyalty programs, and private label offerings, coupled with its commitment to providing affordable, sustainable, and healthy products, positions it well for continued growth and success.
InvestingPro Insights
In light of Ahold Delhaize's recent quarterly report, real-time metrics and InvestingPro Tips provide a deeper understanding of the company's financial health and market positioning. With a market capitalization of approximately $30.97 billion and a P/E ratio standing at 15.71, Ahold Delhaize showcases a stable investment profile. Notably, the company's P/E ratio, when adjusted for the last twelve months as of Q2 2024, indicates an even more attractive valuation at 12.95.
InvestingPro Tips suggest that Ahold Delhaize's management has been actively repurchasing shares, signaling confidence in the company's future performance. Furthermore, the company has not only raised its dividend for three consecutive years but has also maintained dividend payments for 18 consecutive years, underlining its commitment to shareholder returns. This is particularly relevant to investors considering the interim dividend increase highlighted in the article.
From a financial standpoint, Ahold Delhaize's revenue for the last twelve months as of Q2 2024 stood at $95.34 billion, with a gross profit margin of 26.8%. These figures reflect the company's ability to maintain profitability and manage costs effectively. Additionally, the company's dividend yield of 2.8% and its recent dividend growth of 5.29% further illustrate its appeal to income-focused investors.
For readers interested in further insights and tips on Ahold Delhaize, InvestingPro offers additional analysis and metrics, which can be found at https://www.investing.com/pro/ADRNY. There are currently 9 additional InvestingPro Tips available, offering an in-depth look at the company's financial nuances and market prospects.
Full transcript - Koninklijke Ahold Delhaize NV ADR (ADRNY (OTC:ADRNY)) Q2 2024:
Operator: Ladies and gentlemen, good morning and welcome to the Analyst Conference Call on the Second 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. All 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 second 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 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. Any views expressed by those asking questions are not necessarily the views of Ahold Delhaize. At this time, I’d 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, Sharon, and good morning, everyone from sunny Zaandam. I'm delighted to welcome you to our Q2 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. 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 please feel free to re-enter the queue. To ensure ease of speaking, all growth rates mentioned in today's prepared remarks will be at constant exchange rates unless otherwise stated. And with that I hand over to Frans.
Frans Muller: Thank you very much, JP, and good morning, everyone. I'm pleased to report a strong second quarter, placing us well on track to achieve our strategic objectives and financial goals for the year. 2024 is a very important year for us, as we position ourselves for long term, profitable and sustained growth. To that end, we launched our refreshed company strategy, “Growing Together”, internally and externally in May, which many of you attended. At the same time, our current business is performing well. We saw solid and improving momentum at our brands in both regions. Our omnichannel capabilities, the strength of our own brand assortments, as well as our hard work on the cost side to fund investment in our customer value propositions are paying off. Stripping out the noise in our revenue numbers from calendar, exiting tobacco in the Netherlands, the Delhaize future plan, and the FreshDirect divestment, stripping of those, I'm very encouraged by the steady and sequential improvements in comparable sales growth numbers in both regions. And Jolanda will give you more details later. We have further strengthened our relative position in key markets. We have created some headroom in our profitability base in the US to support growth investments, and our European margin recovery is well underway as we look ahead. I would like to thank our more than 400,000 associates for these solid results, supporting and serving our customers at every step, taking the initiative to simplify our business and for embracing our new strategy with enthusiasm and energy. As a reminder, the key elements of our Growing Together strategy are captured in our growth model. These are: Investing in our winning Customer Value Proposition, CVP; Densify and grow markets; Innovate for growth and efficiency; and Leverage and lower our cost base. This quarter, I’d like to spend some time on densify and grow our markets. Important elements of this pillar over the coming years include a more pronounced organic store growth and remodeling program in the US, further leveraging our Benelux stronghold through Albert Heijn and Delhaize, and capturing new growth opportunities in the CSE region, with new store openings and with accretive bolt-ons such as Profi and therefore, bringing skill and synergies. On the flip side, making the necessary interventions when brands are challenged to elevating the quality of our sales and operations, such as the Stop & Shop measures I will talk about later. In terms of strong organic growth, with 47 consecutive quarters of comp sales store -- comp store sales growth, Food Lion exemplifies our clearly defined long-term plan, persistent and consistent execution can led -- can lead to great results. The recently remodeled Wilmington and Greenville markets are delivering in line with expectations. And with only seven stores under construction and 158 stores completed, we plan to complete our total initiatives in the Raleigh markets later this summer. In Europe, Albert Heijn's market share gains continue, with the brand also seeing impressive double-digit growth in online sales. We are capturing new growth opportunities in the CSE region with 18 net store openings during the quarter and continued growing our own brand assortments. We're also nearing the closure of the Profi acquisition, which we expect to happen during the fourth quarter. In Belgium, Delhaize is approaching the final phase of store transitions as part of its future plan. We anticipate the team will have converted all the stores in Q4. To date, 180 stores have transitioned to their new owners. We’re very pleased with the results thus far, with store sales customer frequency, and basket-size all trending upwards. And this is also confirmed by a strong market share recovery with market shares now exceeding pre-announcement levels. On Slide 11, finally let me give you a brief update on Stop & Shop. We recently announced the first major step for the next phase of our Stop & Shop revitalization work with the planned closing of 32 underperforming stores to be completed in Q4. The estimated net impact of these closures on our top-line is expected to be between $100 million and $125 million in the second half of 2024, and between $550 million and $575 million in the total year of 2025. We also expect to recognize a non-recurring pretax charge between $160 million and $210 million in the third quarter of 2024. Closing stores in our industry is never an easy moment and we have done our utmost to minimize disruption for our associates, for our customers, and for the local communities of these impacted stores. However, it is an important step that is needed to create a healthy store base for the long term and to focus our investments to strengthen and grow the brand again. And as we said in May, we are committed to further investments in price and in the customer experience. A great example of this is the opening of the newest flagship Stop & Shop Allston store in Boston in June featuring an extended produce department with more local fruits and vegetables, a carefully curated assortment of products for the wide range of cultures and communities in the area, and the newest price and promotion programs. Investments like these tie on -- tie to one of the other key elements of our growth model, investing in our winning customer value proposition. We know strengthening our competitiveness in the existing network always brings the fastest and highest return on investment. And in May, we announced we would step up our price investments across all brands in the US by $1 billion for the period 2025 through 2028. This will build on price investments and interventions in the current year, which are predominantly focused on Stop & Shop and the Giant Food company in 2024. A great example of this is the Compare & Save campaign, where we are emphasizing the value of own brand products compared to national brands. Although we are in the first phase of the campaign, initial feedback is positive, with higher sales in both dollars and units. In Europe, we are also investing in our CVP by further increasing our range of Price Favorites. We now have roughly [7,000] (ph) EDLP SKUs, up almost 15% compared to last year. This is an important value driver as our data shows that the sales out of these SKUs are a substantial contributor to our sales growth. And finally, let me spend a moment of innovate for growth and efficiency, which includes ramping up our capabilities to drive complementary income streams. This quarter, Ahold Delhaize USA announced its retail media network is partnering with Placements.io, a platform that will further streamline its sales, advertising, and finance operations for its consumer packaged goods partners. In Europe, the Gambit technology, which is our retail media platform through our investments in Adhese, is next to Albert Heijn, now also live at both Alfa Beta and Delhaize Belgium. In addition, Albert Heijn has added new functionality, making it easier for advertisers to activate sales and strengthen their brands, thanks to Albert Heijn's wide reach. For example, video advertisements are now possible on ah.nl and in the Albert Heijn app. With that, let me summarize by repeating that 2024 is an important year in setting the scene, as we pivot to our ambitious Growing Together strategy. Everything I see at the moment gives me confidence that our brands are taking the right steps, moving at the right pace, and leveraging the strong foundation of our business to accelerate growth. Now, over to Jolanda to talk more about the financials and the outlook for the remainder of the year.
Jolanda Poots-Bijl: Thank you, Frans, and good morning to everyone. Our second quarter performance highlights the strength of our portfolio of great local brands, which together with our strong market share positions, is a winning combination. As inflation rates stabilize in both the US and in Europe, we continue to see volume trends improving, and in many cases, moving to positive territory. At the same time, our teams keep a relentless focus on leveraging and lowering our cost base to further drive operational efficiency and cost discipline. Several mitigating actions have been launched to compensate for the ongoing cost inflation in the center of our P&L. We do this in negotiations with our suppliers on cost of goods sold, by bringing AI and mechanization in our operations, and also by simplifying our processes wherever we can. Several organizational simplification initiatives in the US and CSE, which we already announced in previous quarters, are now paying off. Other initiatives within our group organization, which we started earlier this summer, will provide fuel for future growth. While simplification is a strong anchor for our Save for Our Customer program, which is tracking very well year-to-date. Tt also contributes to increasing collaboration, speed, and decision making, which will add to our competitiveness going forward. Now to the key underlying results for the quarter as shown on Slide 16. Net sales grew 0.7% to EUR22.3 billion, benefiting from positive comparable sales, ex-as growth and net store openings. The negative impact of the divestment of FreshDirect, the end of tobacco sales in the Netherlands, and the Belgium Future Plan impacted net sales by 1.3%. Group online sales increased 3.4%. Double digit growth numbers at almost all our brands were negatively impacted by 8% from the divestment of FreshDirect. Group underlying operating margin was 4.2%, a 10% basis point improvement compared to last year -- excuse me, 10 basis points improvement compared to last year. Continued improvement in our European businesses and strong execution in the US were only partially impacted by lower insurance results within the Global Support Office. Diluted underlying earnings per share was EUR0.65, up 4.5%. In the first half year, we bought back 18.3 million shares for a consideration of EUR501 million, also in-line with our EUR1 billion annual plan. And finally, our 2024 interim dividend will be EUR0.50, up 2% from EUR0.49 in 2023, in-line with the group's interim dividend payout policy. Slide 17 shows our results on an IFRS reported basis for Q2. IFRS results were EUR143 million lower than underlying results, largely due to the costs associated with the transition of stores as part of the Belgium Future Plan. On Slide 18, you see comparable sales growth by region, including and excluding weather, calendar, and other effects. This shows a negative impact from calendar shifts of 120 basis points in the US related to the timing of Easter and the 4th of July. In Europe, there was around a 70 basis points negative impact from Easter, a negative impact from tobacco of 210 basis points, and a positive impact from cycling strikes in Belgium of 50 basis points. Before I jump into the regional performance, I would like to spend an extra moment on our online sales growth, which is showing very solid momentum. We see that customers value our omni-channel ecosystems, which offer them the flexibility and convenience of shopping whenever and wherever they want. In Q2, our online sales increased with 11.4%, excluding the divestment of FreshDirect, driven by both new customer growth and strong customer retention. At the same time, we are also making positive strides in e-commerce profitability. A few examples. In the US, the shift in demand to more profitable channels and our initiatives to optimize the store-first fulfillment model are paying off. Our customers respond positively to our new partnership with DoorDash (NASDAQ:DASH), with orders through DoorDash marketplace more than doubling compared to the first quarter. In the Netherlands, Albert Heijn is on its fourth quarter of accelerating online sales growth. To support this strong growth, Albert Heijn has opened its second fully automated Home Shop Center in Zwolle. Here, we are also building on our experience with the Barendrecht facility, which while still in the ramp-up phase, is already performing above a manual facility in terms of operational efficiency. This gives us the confidence we have the right model and the right technological setup to deliver great customer service whilst continuing a journey to online profitability. Greece, our Alfa Beta brand partnered with online delivery company efood, the largest food delivery service in Greece, enabling efood users access to their favorite products within 60 minutes. Looking at the regional performance. In the US, net sales were EUR13.6 billion, down 1.5%. In addition to the calendar impact, net sales were negatively impacted by around 110 basis points, which is EUR154 million, from the divestment of FreshDirect. Our online sales in the segment declined 2.9%. Adjusted for the impact of FreshDirect, which was 16.9%, we realized a strong growth of 14%, supported by Food Lion, Hannaford, and The GIANT Company. Underlying operating margin in the US was 4.7%, up 10 basis points due to increased vendor allowances, cost control actions, and the margin mix benefit from the divestment of FreshDirect. This was partially offset by higher store labor and higher service costs and lower sales leverage. We also see the stabilization of shrink levels following the implementation of several shrink mitigation methods like the deployment of Eversion and Purcheck technology. Turning to Europe. Sales were EUR8.8 billion, up 4.3%. This was due to the positive impact from comparable sales growth of 2.4% and net new stores. Net store openings include the conversion Jan Linders stores in Netherlands, as well as new stores in Belgium and CSE. Over time [ph], Belgium recently opened its 80th store in Lebbeke, underlying its growth ambition in this region as well. Europe's comparable sales growth figure includes a negative impact of 2.1% from the end of tobacco sales at our own operated supermarkets in the Netherlands as of January the 1st, a negative impact of 0.7% from calendar shifts, and a positive impact of 0.5% from the cycling of strikes in Belgium. In Q2, online sales increased by 9.3%, supported by strong execution at the majority of the brands, with particularly strong double-digit growth at Albert Heijn, as I already mentioned. At bol, which has recently been voted the most favorite retail brand in the Netherlands for the 10th consecutive year, online sales were EUR0.7 billion, up 5.5% due to solid first-party sales in a market that grew only low-single digit this quarter. We continue to see strong growth in value-added services at bol, such as advertising and logistics, which grew over 25% and almost 10% for the quarter respectively. Underlying operating margin in Europe was 3.7%, up 50 basis points. We benefited from the performance recovery in Belgium, in part due to the cycling prior-year strikes and the switch to just one operating model, as well as lower energy costs in the region as a whole. This was partially offset by higher labour costs, primarily at Albert Heijn and an increase in the non-cash service charge for the Netherlands employee pension plan. Before moving on, let me provide some additional color on the second half of 2024 in Europe for modeling purposes. The negative impact from the end of tobacco sales is expected to increase to approximately 3%, as Albert Heijn franchise stores stopped selling tobacco as of July 1st. Our net sales will be negatively impacted as 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 to the sales of affiliates. I expect this impact to be around 100 basis points for Europe in the second half of this year. On to Slide 22. Q2 free cash flow was EUR378 million, which represents a decrease of EUR486 million compared to Q2 2023. This was mainly driven by cycling of the incidental tax refund of EUR377 million and negative changes in working capital due to timing differences. When looking at the half year number, we're nicely trending towards our full year guidance with a free cash flow of EUR754 million. Finally, let me spend a few moments on our non-financial KPIs, particularly those of relevance from a healthy communities and planet perspective. As you know, one of our key priority -- priorities is to increase the share of healthy sales. This is an area where we can make a difference for our customers. A great example here are our convenient meal solutions, with fresh produce for consumers, so-called verspakketten across Albert Heijn and Delhaize. Last month, we also published our 2024 Human Rights Report, this is a foundational commitment towards our associates, our customers, our communities, and the people in the supply chains of our company. The report includes several major updates to our standards of engagement for suppliers and highlights of our brands' initiatives to improve workers conditions across the value chain. Outside of our value chain, we are very active in providing for and serving community needs. Food Lion, which has just celebrated 10 years of Food Lion Feeds, has donated 1.2 billion meals since 2014 via their hunger relief platform and is well on track to its pledge to donate 1.5 billion by the end of 2025. Let me wrap it up. Given the positive momentum of the second quarter, I am confident that although the environment remains dynamic, we are well on track to deliver on our commitments for 2024 and we reiterate our outlook for the remainder of the year. The stronger than planned performance in half year one 2024 provides opportunities to already take some further actions to support our Growing Together strategy and financial long-term ambitions. With that, I would like to thank you for your continued interest in our company. And operator, please open the lines for questions.
Operator: Thank you. [Operator Instructions] We will now take the first question. And your first question comes from the line of William Woods from Bernstein. Please go ahead.
William Woods: Hi, good morning. Thank you for taking the questions. I've got three. The first one is, obviously, why hold EPS guidance flat when H1 grew at 4%? Would you expect a decline in the second half? The second question is, are you able to give any context on the margin impact of the Stop & Shop closures? And then the third one is, do you have any comments or details that you're able to provide about US consumer health? Do you think the consumer is getting better or worse? Thanks.
Jolanda Poots-Bijl: Well, thank you for your questions, indeed. The first question was around EPS being flat or sticking to our guidance, one could say. As we already indicated on Strategy Day, but also in our recent communications, our current solid position gives us the opportunity to start investing in our Growing Together strategy also in the next few quarters. So we are confident that we can deliver on our guidance, and we will use any momentum to drive profitable growth going forward. Then your second question on the margin of Stop & Shop impact, as we have included in our interim report, we remain our guidance for 2024, including the Stop & Shop impact underlying, so below the line. As we said, we have a pretax impact of 160 to -- a range of $160 million to $210 million, which will be included in our Q3 numbers.
Frans Muller: Yeah. And thank you, William, for the last question on the consumer health in the US. I think we should -- with all the noise we hear now and then, we should not forget that we are in food business. We are not in a discretionary business, and we have very, very small non-food shares in our total business. And that's why we in food worked very hard the last year, on a very good digital proposition, very strong loyalty programs, but also at the same time are ramping up our private label shares. We have above the 30% private label participation. And we also, where needed, make sure that we are priced right. And that gives us confidence with the number one and two market positions and the strong brands we have. And communities are very loyal to our brands, that we have a good position here to serve our customers with affordable, sustainable, and healthy products. And that's why we are confident also in the present situation in the market, because we also see volumes are trending in a positive directions. We get more support from our vendor community on promotions and trade funds. So, at the moment, we see a rational pricing environment. And yeah, it's hard work, but we have to make sure that we do the best thing for our customers. We are confident that we also can win further share in this type of market, which -- as I said before, we are in a food business and that spend for households comes earlier than discretionary and then on food.
William Woods: Excellent. Thank you.
Operator: Thank you. We will now go to the next question. And the question comes from Izabel Dobreva from Morgan Stanley (NYSE:MS). Please go ahead.
Izabel Dobreva: Hello. Good morning. I have three questions. So the first one is on the US margin performance. Could you go through the drivers of what drove such a material step change in the run rate year-on-year this quarter compared to last quarter? Was it mainly the vendor funding component? And if yes, could you maybe give us a sense of where promotional funding sits as a percentage of your sales compared to the long-term average. So we can have an idea of how long this might persist? Then my second question is, you talked about the improving volumes, and I guess, you touch upon this in the outlook. But my question is, why did you allow the margin to expand year-on-year in Q2 and why not increase the price investments into the back-half of the year, or maybe that is something already included in your guidance? In which case, should we assume that the price investment budget is actually above EUR1 billion as you pass on future volume benefits? That is the second question. And then the third one. So, on Delhaize, you said that the market share is now exceeding the prior market share. Is it fair to say that – that is better than your initial expectations? And should we assume that the margin is back comfortably above 4% already next year?
Frans Muller: Thank you, Izabel. Jolanda will take your first question, and I will do my best for two and three.
Jolanda Poots-Bijl: We'll support each other. Thank you, Izabel, and indeed. Your first question on the margin in the US, the majority of support in that margin is based on a muscle that we've developed over decades and that is a solid cost control environment. As you know, we exceeded our targets last year on the Save for Our Customer program. For this year, we again have a target of EUR1 billion. And that cost control and those early measures that we take all the time are really paying off. Of course, we are also looking at our vendor support, our vendor allowances, and I can say we are -- we were striving to get back to pre-COVID levels and we're closing in there. So we are close to the levels that were normal pre-COVID. Another element that do support that margin is that shrink is stabilizing in the US as well. So altogether, this is driving a solid margin, which is an excellent foundation for the steps going forward, including the price investments that we foresee.
Frans Muller: And then on the improving volumes, Izabel we are happy with the trends we see, which is not only important for us and for our customers, but also important for our vendors. We get more support from our vendors, because they also strive for positive volume growth. And the other thing is, of course that we have very strong positions on the East Coast with number one and two positions everywhere with our annualized 60 billion of dollar sales per year. So, I think we are in good address to work with to drive volumes, and that's why we see very positive response from our vendor community. Your other question is on price investments in itself. Can't it be more? Can't you drive even more volume? And of course, that is first of all, a very fine line of how to do -- how we deal with this. But we are investing in -- we're investing more than in the past in brands like Stop & Shop, and Giant Food company in Baltimore and Washington to drive volumes and to make sure that they even get more competitive, which was already for Stop & Shop an initiative we mentioned earlier. And pricing and price perception and elasticity is a nice, fine game. But we are very happy what we see so far with the -- we call them the green shoots of the price investments, which started with a promotional price and perception campaign at both Giant Food and Stop & Shop, both for national brands, but also for private label. And we're quite happy with the uptick we see there. And that gives us confidence that we can drive those volumes, especially also in those two brands with those increased price investments. Then on Belgium, 108 stores converted to the entrepreneurs. Jolanda mentioned a few things already, the difference in how to calculate the sales from a franchise to a company-operated company. But we are indeed, very happy with the development there and we are growing our market share and we are now already at the level before the announcement of our exercise, our intervention here. But we are very positive that it will grow beyond the before levels. And happy with the shares. And let us say, the market shares and the growth in those 108 stores is better than we expected, but it is also better than the entrepreneurs expected. So that is pretty cool. That is very nice to give both entrepreneurs and ourselves more confidence.
Operator: Thank you.
Izabel Dobreva: Thank you.
Operator: Thank you. [Operator Instructions] We will now take the next question. And your next question comes from the line of Robert Jan Vos from ABN AMRO (AS:ABNd) - ODDO BHF. Please go ahead.
Robert Jan Vos: Yes. Hi, good morning all. My questions are as follows. You realized about one-third of your free cash flow target in the first six months. Can you remind us why you remain confident that the EUR2.3 billion target is definitely feasible for this year? And then my second question for the Belgium Future Plan, there were quite a bit of one-offs in Q2, EUR122 million, if I'm not mistaken. Yeah what can you say about additional one-off costs for Belgium in the second half? I assume it will be a lot less since you have done most of the conversions. And a related one. Can you confirm that the $160 million to $210 million pretax charges, that is all -- in other words no further charges beyond Q3 for Stop & Shop? Thank you.
Frans Muller: The first two will be dealt with. Hello, Robert Jan. Thank you for the three questions instead of the [technical difficulty] guidance for two. It's a little bit logical way of following the previous colleagues. But yes, I can -- we can confirm that the one-off charges for the Stop & Shop, 32 closures -- that is the amount we have seen. That is a pretax amount and that's what it will be. Jolanda, the first two on free cash flow and future plan?
Jolanda Poots-Bijl: Yeah. And maybe adding to the Stop & Shop question, we did indicate, of course that closing Stop & Shop will have a sales impact on next year. But that's not a one-off. Your question on the free cash flow, it is, indeed, the normal seasonal pattern. So if you would analyze a few years back, it is a seasonal pattern, where we always realize a strong free cash flow in the second half of the year. So, nothing exceptional there. The second question was -- which was the second question?
Frans Muller: The unusuals for the future plan.
Jolanda Poots-Bijl: The unusuals for the Belgium Future Plan. Yes, we have one quarter to go on those unusual. So, they will be in the Q3 results and then it will end. So that will be a stop to that transformation and then we go on to operating those stores, all of those 128 stores as affiliated stores, and will no longer have the below the line impact.
Frans Muller: Yeah. As I mentioned, Robert Jan, already the content with our entrepreneurs and ourselves on sales and market share developments in Belgium. But what is also here is that also our vendors are very positive reacting to that operation as well. So we get also there more support. And of course you can imagine that for our total business, which will be, by the Q4, completely affiliated, that it will also give more simplicity to our total operation. And therefore, also simplicity for management to run that business even better.
Jolanda Poots-Bijl: And Robert Jan, on the affiliation, we only have 20 stores to go. So, it is a small portion ahead of us.
Robert Jan Vos: Well, that is very clear. Thanks for answering my three questions.
Jolanda Poots-Bijl: Yeah, thank you, Robert Jan, for asking.
Frans Muller: You, yeah.
Operator: Thank you. [Operator Instructions] Your next question comes from the line of Frederick Wild from Jefferies. Please go ahead.
Frederick Wild: Good morning, Frans, Jolanda, and JP. Thank you for taking my questions. First, on working capital movements, could you help us understand a bit about the seasonality of those shifts and whether there is actually any extra vendor support going through the working cap-line to help realise those vendor allowances? And secondly, when I think about the free cash flow guidance this year and the $160 million to $210 million, those Stop & Shop restructuring charges, were those always around the levels you anticipate for these restructuring charges, so that when it's included in free cash flow, it comes as you expected, and so there is no change to guidance from that front? Thank you.
Frans Muller: Thank you very much. Super disciplined, indeed, with the two. No, those one-off charges for Stop & Shop were as expected, as -- according to our business plan. On the working capital seasonality, Jolanda?
Jolanda Poots-Bijl: Yeah. And indeed, included in our guidance, the Stop & Shop one-offs, and have limited cash impact in the year. Working capital, it's the regular seasonality we see there. What you should -- could bear in mind is that we are increasing our franchise sales, which has a positive impact because of somewhat lower inventories and a negative impact, because we now have receivables in there. So there is nothing unusual going on in our working capital. If you look at the year-to-date position, so, Q1, Q2 together we are improving on our working capital. And we also foresee some elements, some opportunity there also going forward on the longer-term.
Frederick Wild: Fantastic. Thank you.
Jolanda Poots-Bijl: Thank you.
Operator: Thank you. Your next question comes from the line of Fernand de Boer from Degroof Petercam. Please go ahead.
Fernand de Boer: Yes, good morning. Thank you for taking my questions. I also had more than two, but I will keep it to two. On the Stop & Shop charge, could you explain a little bit more what it's exactly for? Is this for the leases and then the cash out there will be much later? That's the second one. And maybe also related to that, could you tell us a little bit about the payback time of all your charges? Because last year, you had quite a lot for FreshDirect. You have now for Belgium now for Stop & Shop. So, could you tell me a little bit more about payback or the return on invested capital of these charges? And then coming back on the allowances, is this a kind of reward for the volumes you had so far, or that you still have to take some cash outs for, let us say, doing the promotions in the coming quarters?
Frans Muller: Hi, Fernand, [Foreign Language] Good morning.
Fernand de Boer: Good morning.
Frans Muller: On the allowances -- the vendor allowances, we see a comparable picture in Europe and in the US. That means that the structure of vendor support, trade rates versus vendor allowances, a different structure in Europe and the US, as you know. But we see in both geographies strong support from our vendors. They are looking forward as well to have driving positive volumes. And that's what we see now, and where, let's say, during COVID, I would say -- that already sounds already ages back, where it was easier to generate sales without those vendor allowances. It is now we have to work harder for this volume growth. That's also what we see now with our vendor partners, that this is happening. We also drive a lot of volume, by the way, with our private label. Our private label growth is delivering more volume growth than through our national brands so far. And that might be also one of the reasons that we see more support from our national brands, too. So it is more than before. It is driving volume, it's through promotions. And the cool thing is that we invested a lot of time and money in data, loyalty systems, digitization of our apps. And if you would shop at Albert Heijn, then you would see that it is super-personalized. So, also those promotional monies are having better conversion rates with us than with a lot of our competitors. And that's, of course, also super attractive for our vendor partners. Stop & Shop, the payback?
Jolanda Poots-Bijl: Question?
Frans Muller: Yeah.
Jolanda Poots-Bijl: Yeah. Thank you for that question, Fernand. The Stop & Shop incidental pretax of $160 million to $210 million is a combination of impairments, non-cash. And there's also, indeed, some lease-out contracts in there of which the cash out will run through our books in the coming years. All those cash elements are in our guidance for this year and converted in our Growing Together plan. The payback period, that differs per element. But if you look at it from an incremental cash perspective, this payback period is very short. So, within one year to two years, we are cash positive on this decision.
Frans Muller: And you referred loosely Fernand, to other cases like FreshDirect and the less Future Plan in Belgium. I also can confirm what you expected, that already we are better than our business plan Belgium -- on the Future Plan, with the speed we see on conversion and the speed we see also in market share gains, volume and trends in sales with big compliments to our Delhaize team in Brussels.
Fernand de Boer: Okay. Thank you very much.
Jolanda Poots-Bijl: You're welcome.
Operator: Thank you. Your next question comes from the line of Clement Genelot from Bryan, Garnier & Co. Please go ahead.
Clement Genelot: Yes. Good morning all, and thank you. I will stick to two questions. The first one is on Stop & Shop. You guys talked about related to Stop & Shop store closures, but do you also intend to convert other Stop & Shop stores related to other banners inside of the group? My second question is related -- a follow-up one. As you convinced, all the CPG brands were to finance higher discounts in the US, or do we have to expect a further and higher contribution from the -- all the players throughout H2? Thank you.
Frans Muller: Could you please -- because the line is not great. Could you just please repeat your second question, please?
Clement Genelot: Sure. That was all about the realized US discount. Because if I might, the large discounts paid by these -- all the players was higher. So, do you intend to roll onboard over brand throughout H2 and do we actually expect a higher contribution from these players [back] (ph) margins in H2?
Frans Muller: Yeah. Thank you. Thanks for helping us understanding the question. No, we don't see other store closures in other brands apart from Stop & Shop, because we have -- those brands are very healthy, those other four with great locations and doing fine. So the intervention here is in Stop & Shop, specific intervention with the 32 stores. And on support from CPG companies in vendor allowances, trade funds or discounts or promotions, we expect that that will support will still -- the support will still grow in the second half of this year. And I think -- last two quarters ago, I think JP gave a sort of dangerous forecast that I expect --.
Jolanda Poots-Bijl: Don't go there.
Frans Muller: I expect positive volume in our US brands by the end of this year. And I think we -- I would still stick to that forecast. It's a dangerous one. But I think we have overall positive volume growth in the US by the end of the year, given the fact that we get a lot of support from the vendors.
Clement Genelot: Okay. Thank you. Just maybe one clarification regarding Stop & Shop. Do you expect to convert some underperforming Stop & Shop, let's say, towards Hannaford or on Giant Food or just another food company going forward on top of the other store closures?
Frans Muller: No, this is not what we will do and what we see. So the 32 closures are Stop & Shop closures. The people working there will get employment in other Stop & Shop stores and there will be no planned conversions at this moment to other brands. And it has also to do with the unionized character of Stop & Shop as well, both for the associates and for the type of conversions which are possible. So that is not foreseen.
Clement Genelot: Understood. Thank you, Frans.
Operator: Thank you. [Operator Instructions] We will now go to the next question. And your next question comes from the line of Francois Digard from Kepler. Please go ahead.
François Digard: Good morning, Frans, Jolanda. Thank you to take my question. I will stick to one on volumes, but in the two regions. So, to start, in the US market, you just nearly answered it, but is it fair to understand that the underlying volumes are still negative for yourself or for the markets where you are operating? It is partly saved by the lower sales leverage you are referring to in the press release, but I would appreciate if you could elaborate on that. And on the volume side as well in Europe, I've been quite impressed by the sales growth despite the minus 2.1% tobacco effect. Could you help us to understand what have been the magnitudes of volume growth in Europe? Thank you.
Frans Muller: Thank you very much, Francois. We don't comment on brand by brand on volume growth and these kind of things, but I can give you some indications already, because of course, we know those numbers. One thing is, in the US overall US, we are still slightly negative on volume, but we have more than two brands now positive volumes on its own. And you heard my expectation for the second half, the end of the year. In Europe, we have overall positive volumes in Europe, and the brands also run against positive volumes, too. So in Europe, we are a little bit ahead of the game in volume growth, but you also partly can see a little bit from the sales perspective. And the other thing is that on inflation, because it's always nice to model this as well, we said earlier that we expect roughly a 1% to 2% inflation by the end of the year -- food inflation I talk about. That is at the moment for Europe and US the identical number.
François Digard: Thank you. Thank you very much.
Operator: Thank you. We will now take our final question for today. And the final question comes from the line of Sreedhar Mahamkali from UBS. Please go ahead.
Sreedhar Mahamkali: Hi, good morning. Thanks for taking my questions. I've got two. Maybe if you don't mind if I can squeeze in a follow-up first. I think this was William who was asking this earlier in terms of what we should be thinking about when we are deconsolidating $500 million, $575 million of sales in Stop & Shop. How should we think about profits or losses that we should also be deconsolidating in the US in Stop & Shop? That's the first one, which is a follow-up, sorry. A couple of questions I had was, US margins, I think we're discussing quite a lot, vendor allowance is very unusual, on your calls. I guess, that in itself is quite telling, just our understanding maybe of the business. To what extent is this a sustainable driver of margin or was there any kind of timing difference in recognizing the vendor allowances in Q2 as opposed to maybe second half or something? That's the first question. Secondly, I mean, Frans, you've talked about strong performance in H1 allowing you to initiate further actions on the Growing Together strategy. And you've also referred to perhaps bringing forward Stop & Shop and chain price investments to come in 2024. If you could explain, is that you bringing forward what your plans were for 2025 into 2024? If you could just help us understand your plans for the second half? Thank you.
Frans Muller: Thank you, Sreedhar.
Jolanda Poots-Bijl: Thank you for your questions. You asked a question about the Stop & Shop profit and how to model it. In 2024, the guidance given is the guidance that we uphold for the remainder of the year. And of course, Stop & Shop the closure has a positive effect in margin, and that is included in our Growing Together guidance going forward. Your second question is on vendor allowances. It's, of course, a regular part of a business and we were trending towards the pre-COVID levels, which will then be our structural levels again. So there is nothing unusual to note there.
Frans Muller: It's quite a normal part of our business, Sreedhar, as you know. Vendor allowances, trade funds and these kind of things, we talk about it daily, because this is part of our P&L, our funding to drive the best proposition for our customer base. Then Growing Together, we gave and -- I think a pretty ambitious plan for the coming four years as from 2025 with a 4% growth, an average 4% European margin and these kind of things. And we would like to make sure that we are ready well before the 1st of January to deliver that. And that is why we have all the teams now working on this, if it's private label, if it's healthy sales, if it is sales numbers, if it is online, all these kind of things. So people are not waking up the 31st of December, we have planned 2025. They are preparing now already to ramp up. So that's why we invest now already further in price in Stop & Shop, in Giant Food, as I mentioned. We have our regular price investments to stay in-line with our pricing strategy for the other brands in the US. The same we can also have for the European brands. So, when it would be much better than expected, then we will invest that -- part of that money also and to make sure that we are ready for 2025 to deliver on our Growing Together plan. And Growing Together plan 2025 is, of course, also including our Profi acquisition. Hopefully, that we get -- that we can consume that one in the fourth quarter of this year. And I think we talked about that earlier. Was that an – answer to your questions with your new definition of two and three and follow-up, Sreedhar?
Sreedhar Mahamkali: Thank you.
Jolanda Poots-Bijl: That was okay.
Sreedhar Mahamkali: It genuinely was a follow-up. William Woods did ask that question.
Frans Muller: The other questions were okay for you? The answers --.
Sreedhar Mahamkali: No, no, no. Absolutely. No, absolutely. I think you're totally right. Vendor allowances are a fairly meaningful part of the businesses, but it's just that we haven't seen you calling that out as a margin driver in the past. I think that --.
Frans Muller: We love to talk business with you, and I can tell you that vendor allowances is a pretty important part of our total P&L.
Sreedhar Mahamkali: No, no, no. Of course.
Frans Muller: Yeah, yeah.
Sreedhar Mahamkali: All right. Thank you.
Frans Muller: Thank you.
Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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