Axfood AB (publ) (AXFO) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Axfood Second Quarter 2026 Earnings Presentation. My name is Alexander Bergendorf, Head of IR here at Axfood. With me today are Simone Margulies, President and CEO; and Anders Lexmon, CFO. In the Investors section of our axfood.com website, you will find the presentation materials for today's call. We encourage you to have that presentation at hand as you listen to our prepared commentary. After the presentation, we will be taking questions. A recording of this call will be made available on our website. With that, I will now hand over the word to Simone. So please go to Page #2.

Thank you, Alex. Axfood maintained a high level of activity during the second quarter with focus on further strengthening presence, competitiveness and efficiency. We delivered positive growth and increased earnings against high comparison figures in a market characterized by food price deflation. We are well positioned for the future and continue to pursue our long-term strategic plan, while we, at the same time, implement targeted tactical measures to strengthen our growth also in the short term. Turning to Page 3. With that very brief introduction, let me now take you through recent market developments and Axfood's second quarter performance. So let's move on to Page 4. Market growth amounted to 3.7% during the quarter, which was a somewhat lower level on a sequential basis. However, compared to the first quarter this year, there was deflation in food prices that impacted market growth negatively. As you all probably know, the VAT on food was reduced on April 1 from 12% to 6%, and this was fully reflected in the price development on the market. But also excluding that effect, there was deflation, mainly driven by lower prices in the dairy category. In total, the annual rate of deflation was minus 6.2%, including VAT according to Statistics Sweden. And excluding VAT, the deflation is estimated at minus 0.9%. Adjusting for the deflation and a negative caln effect of minus 0.3%, market growth was strong at 4.9%. It is, of course, still early days to determine how the reduced VT has affected consumer purchasing behaviors. But that said, the second quarter development of the market clearly shows an improved volume trend. At the same time, the world around us remains uncertain, and it's also clear that consumers continue to focus on price value. Next slide, please, #5. Axfood's retail sales increased 2.1% in the second quarter, also driven by higher volumes. We faced high comps from last year, and we really outperformed the market then by quite a large extent, and this is evident if you analyze the development over a 2-year period. This is shown in the chart to the right on this slide. Last year, we also had contribution from City Gross. Despite the strong sales increase last year, deflation and the negative calendar effect, growth did not reflect our ambitions. We are now on Page 6. Consolidated net sales for Apotea grew just below 1% in the quarter. And as I just mentioned, this was mainly driven by higher volumes. The development varied between our various retail chains, Hemköp really stands out this quarter with continued very strong growth. As for City Gross, as a reminder, total growth continues to be impacted by store closures. So please go to the next page, #7. In all, we report increased earnings in the quarter despite the lower growth. Group operating profit increased to SEK 964 million, and the operating margin was higher at 4.2% Operating profit included items affecting comparability of minus SEK 8 million related to City Gross. Last year, items affecting comparability also related to City Gross and amounted to minus SEK 25 million. On an adjusted basis, operating profit increased to SEK 972 million, and the margin was flat year-over-year, amounting to 4.2%. The improved profit was primarily driven by higher sales volumes, a stable gross margin trend and effective cost control. Earnings were negatively impacted by deflation and also cost of SEK 40 million due to higher fuel prices. Joint Group reported a narrowed operating loss, partially due to cost savings from our measures to improve efficiency within and between the group's support functions, including workforce reductions. Let's now turn to Willys on Page 8. The high comps we faced this quarter was mainly in Willys. Last year, Willys really outperformed the market as growth in the period amounted to 10.2%, and compared to 6.1% of the market. In addition, Wheels growth this quarter was negatively impacted by deflation. In all, we grew 1% in total and minus 1% on a comparable basis. With the negative growth in like-for-like sales, earnings declined to SEK 524 million, corresponding to an operating margin of 4.2%. The gross margin development was stable. I will get back to Willys development and strategic agenda later in this presentation. But for now, let's turn to Page 9 and Hemköp. As I mentioned, Hemköp continued to demonstrate a very strong performance in the second quarter and clearly increased its market share once again, delivering Growth was driven by higher volumes with an increase in customer traffic. And in addition, a higher average ticket value contributed positively. On the other hand, deflation impacted growth negatively. Like-for-like growth was also very strong. In total, operating profit increased to SEK 123 million, and the operating margin was also higher at 5.4%. The development was mainly the decreased sales volumes, a stable gross margin and solid cost control. Turning to Page 10. With the City Gross acquisition, we have taken position active hypermarket segment and work to develop the chain so that it can become a long-term competitive player is ongoing. This quarter, City Gross once again delivered a positive profit development with a narrowed operating loss. In total, the loss amounted to minus SEK 11 million on an adjusted basis, corresponding to an operating margin of minus 0.5%. And City Gross reported somewhat weaker growth this quarter, so the improvement was mainly due to effects from structural measures as well as efforts to streamline operations. On a reported basis, the operating loss amounted to minus SEK 3 million, which corresponds to an operating margin of minus 0.1%. This included the items affecting comparability I mentioned, which refers to structural measures for stores. In late May, City Gross closed historian Stockholm, it's 4 store closures so far. Later this summer, City Gross will be closing down the [indiscernible] store, which will be converted to Willys during the fall. We are now on Page 11. [indiscernible] sales were unchanged compared with the corresponding quarter last year, both in total and on a like-for-like basis. Earnings were just slightly below last year. The gross margin stable, but the weak sales development could not offset the cost inflation. In total, operating profit amounted to SEK 93 million corresponding to an operating margin of 5.8%. Next, Page #12. Dagab is on quarter net sales increased by approximately 1%. As for the development in our retail chains, growth was negatively impacted by deflation, so also here, the development was driven by higher volumes, mainly to Dagab's food retail customers and especially Hempco. Operating profit amounted to SEK 280 million and the operating margin was 1.3%. We Earnings were negatively impacted by deflation, market investments and increased cost due to higher fuel prices, which I mentioned earlier. Improvements in productivity from our new logistics structure had a positive impact on the profit development. Startup continues to optimize the flow goods to further improve efficiency and productivity but also continue to invest in transports with ambitions of electrifying 50% of its vehicle fleet by 2030. In addition to investments in logistics, the company maintains a high pace of assortment development launching 6 new products and our private label brand during the quarter. That concludes the first part of today's presentation. Now it's time for me to give -- hand over to our CFO, Anders to take you through the financials. And we are now on Page 13. But please go to the next page, #14, and Anders, please go ahead.

Thank you, Simone. During the first half of the year, net sales for the group increased 1.7% to almost SEK 45 billion. Retail sales increased 2.9% and which was lower than the market in total over growth amounted to 4%. Adjusted operating profit increased 4% to almost SEK 1.8 billion. The adjusted operating margin increased by 0.1 percentage points to 4%. Next, Page 15. During the second quarter, the cash flow was minus SEK 47 million, SEK 86 million lower compared to last year. Cash flow from operating activities and net working capital was negatively impacted by the VAT cut on food from 12% to 6% as of the first of April. The negative cash flow on investment activities of minus SEK 376 million in Q2 was somewhat lower compared to last year, mainly driven by lower investments in warehouses and investments in our retail operations were in line with last year. The increased cash from financing activities was explained by lower credit facilities compared to Q2 last year. By the end of Q2, Axfood utilized approximately SEK 2.8 billion of our credit facilities compared to SEK 3.1 billion by the end of Q1. Please turn to next page, Page #16. Net debt increased compared to year-end 2025 due to higher leasehold debt utilization of credit facilities and lower level of cash. The net debt-to-EBITDA improved compared to Q1, thanks to a strong EBITDA development and the lower net debt. The equity ratio amounted to 19.1%, which was lower than in December 2025, and due to the dividend, the Q2 equity ratio was, however, 0.9 percentage points higher compared to Q2 last year. Investments, excluding leasehold debt and acquisitions amounted to SEK 927 million during the first 6 months. Year-to-date, we have established 7 new group owned stores, which was in line with this year. Compared to last year, investments in store tech men and warehouse automation has increased while investments in IT and trucks has decreased. Please turn to next page, Page #17. Axfood has a solid negative net working capital. The reason AAT cut has, however, had a negative impact and consequently, the 12-month rolling KPI was negatively impacted in the first 6 months. Capital employed has increased in recent years, mainly due to the acquisitions of Verandas Food and City go as well as investments in our Borstar Logistics Center. The level of capital employed has, however, decreased slightly since year-end, as equity was reduced not only by dividend paid, but also the dividend to be paid in Q3. This effect was partly offset by higher lead thanks to improved earnings and the reduced capital employed, ROCE improved by 0.9 percentage points compared to 2025. And with that, Simone, I'm finished with my presentation. So I hand over to you again.

Thank you, Anders. We are now on Page 18, and it's time for me to give you a more detailed update on our strategic agenda and priorities. So let's turn to Page 19. We have a clear house of brand strategy in our group, and this makes us unique in Swedish food retail. We aim to deliver the strongest customer experiences, and we are present in all segments of the market with our different concepts. So please next Page #20. With a continued strong position, will assist the store chain most recommended among households. Willys continues to develop its customer meeting and upgrade the store network to the latest Willys 5.0 store concept. By the end of the year, 70 while store in total will be according to the Willys 5.0 concept. At the same time, new Wheeler stores are being opened at a rapid rate to reach even more consumers. And the total store count is now 254. We're seeing strong growth in both newly established and refreshed stores. Just recently, Wells passed the milestone of 4 million members in its Willys Plus loyalty program. So it clearly has very wide reach what it can build on. We list also focuses on increasing the growth rate in the short term through targeted tactical measures. We are now on Page 21. With prime store locations and an attractive affordable assortment focused on inspiration and sustainability, Hempsho momentum continued strong, and its growth was double the rate of the market in the second quarter. This really is the long-term work to strengthen the train market position. Hempship also continued to invest in modernizations of existing stores to further improve the customer experience. In total, Hemkop has 2.2 million members in Club Hemkop Loyalty Program. Turning to Page 22. For City Gross, a highlight of the quarter was the launch of its new store concept at the piston in shopping. City growth has been working on this for some time, and the concept is developed based on our new strategy to revitalizing the brand. The goal here is to create a vibrant food market with a relevant assortment and fresh producing focus. When developing the scalability has also been key as well as creating conditions for efficiency in store creations and sales management processes. It is positive that City Gross now has this pilot in place. Going forward, we will evaluate the concept and make necessary adjustments where we see it fits. We are now on Page 23. To create the right conditions for retail concepts to be able to succeed in the market, we leverage our strength as a group and focus on 6 strategic development areas. We have shown you this before, and I covered selection last year, now I want to focus a little bit on 2 of these, operational efficiency and sustainability. So please turn to Page 24. Working cost effectively is part of our business model, and it's particularly important now and work to mitigate the effects of food price deflation. Above all, we are continuing to optimize the activity and cost efficiency, our new logistics structure by also developing new ways of working using new technology and scaling up our use of data and AI. Our efforts to streamline the group's support functions are also continuing to enable cost savings. Next, Page #25. We aim to be a positive force in society, taking the lead in promoting a sustainable food system and contributing to better public health, not least through assortment development and research collaborations. During the quarter, we launched new innovative products that promote sustainable and healthy consumption, including light meals made with hydrothermal treated whole grain ride that enables the body to absorb essential minerals. We also launched hybrid products combining meat with vegetables. In the quarter, we had a good Lim development in fruit and vegetables, which contributed to an increased share of sales from sustainability labeled products. We are also continuing the positive effects from our transition to renewable fuels, electricity through reduced transport emissions. During the quarter, the share of electricity in the fuel mix increased significantly to more -- almost 14%, up from just below 5% a year ago. In late spring, our new ambitious climate targets were valued by the science-based target initiatives, making an important milestone in our efforts to reduce our negative impact on the climate and by diversity. I would also like to highlight the Group's focus on diversity and inclusion One example is that we contribute to helping young people in vulnerable areas enter the workforce by providing them with paid jobs [indiscernible], which is a combined school and work experience program, which we now are expanding and through the newly established Form 4 inclusion. Moving on from our strategic agenda, and we are now on Page 26. Our outlook for the year is unchanged, and it covers investments new store establishments and items affecting comparability. With regards to the new establishments, in total, we opened up 3 new group owned stores in the quarter, all of which Willys and as Anders mentioned, for the year, we have 7 new stores -- we have 7 new store establishments. So please now turn to Page 27. So let me conclude. I can now summarize a quarter marked by a high activity level and increased earnings. We have strong market positions, clear strategic priorities and several ongoing initiatives to strengthen our presence, competitiveness and efficiency. With distinctive concepts and shared culture and focus on execution, we are well equipped to continue to develop and create value over time. And that was all for today. So now please turn to Page 28, and I hand over to the operator to open up the line for questions.

[Operator Instructions] Next question comes from Fredrik Ivarsson from ABG Sundal Collier.

I hope you can hear me. First, regarding the growth in bus maybe. So last quarter, I remember you mentioned that it was impacted by a few things like temporary store closures and some store modernizations. Would you call out the similar, let's call it one-offs impacting the market share in Q2?

Regarding the growth of Willys, I would say Willys has really, really high comparison figures, growing more than 10% last year. That, together with the price deflation, make them have a weaker growth this quarter. However, we wish to see a stronger growth. And that's why we're also taking some tactical measures now. So in the short term, improve the growth of Willys.

Okay. So no similar impact as we saw in Q1. And on those tactical measures, what's that? And what's your assessment of the price positioning versus the market at the moment you need to widen the gap? Or is it anything else you?

To start with, we don't comment exactly the strategy. However, for us, the most important is to have the shippers bag of groceries and that we continue to have that for Willys. And regarding the tactical measures, it's measures to increase traffic to the stores on a short term.

Okay. Fair enough. And on the higher fuel cost, SEK 40 million, obviously, I guess, difficult to say where the [indiscernible] prices are heading or at the current level of I think it's around SEK 30 per liver. The headwind should become slightly lower in the back half of the year? Is that your view as well?

Yes, Fredrik, we have to come back to that. But obviously, it's depending how the situation in the Middle East is developing and how the prices it even. So we have to come back to that.

Okay. And last for me before I jump back into the queue. You didn't call out any impact on the temporary cut in employer tax for young workers this quarter. Was this not significant? And will it impact rather Q3?

It's -- of course, it's positive with -- as you said, the reduced tax employees, which has a positive effect. It's not as we still significant since we also have the I'd say the normal inflation in salaries that is much, much bigger. And it's -- since we singled out the fuel, this is obviously not in line with that, how sad that amount.

The next question comes from Niklas Ekman from DNB Carnegie.

Can I ask about City Gross where you're seeing reduced losses now, but most like-for-like and store sales here are negative? Obviously, partly related to store closures, but can you talk about any efforts here to reverse the sales trend? Or do you think focus still in the short term is mainly on improving the profitability?

I mean, for us, I think I said it before to create profitability. Of course, you have to do it through attracting customers and drive volume and then you get the profitable growth. And as you said, the sales in City Gross on total is affected by store closures, and we have a negative like-for-like sales in city gas. And of course, we would like to see stronger growth in like-for-like for City Gross acted a lot of the price deflation, I would say. So for us, it's to have the balance between all the parameters. However, we see a good -- we're following our plan, and we see the increase in the -- I would say, profitability the loss is lower and we're following our plan. So that's why we reiterate the goal to be profitable sometime in the second half of this year. And we have to be that together with growth in like-for-like sales. So we said before and that's what we're working towards to create a healthy core where we have both sales growth in like-for-like and also making a good development in both the brand and also the customer I'd say, the customer meeting.

Can I just ask how is City Gross impacted by deflation. I can see why Willys will lose some of its attractiveness when price is not the key focus area. But I think for city gross, you shouldn't see that impact. They should be able to drive traffic even with lower prices? Or did I miss something there?

Maybe I was unclear. The deflation since we do not single out volume or mix or deflation, the deflation decreased the top line.

Okay. Okay. Fair enough. And also just in general here, if you look at the industry, it's been impacted. There's been quite significant margin pressure in the last 2, 3 years quite significant price pressure. Are you seeing any signs of this easing now and particularly since we saw the VAT cut? Or are you seeing still a very tough price competition among your competitors?

No. I can confirm that it's still a very high competition in the market. I would say it's unchanged. It's been a high competition for a couple of months or a couple of years now. So that is target climate, high competition. We have the VAT reduction and then we also have any deflation on top of the VAT cuts. And also on that, I think it's important to single out that we have really, really high comps from last year, the highest comp in the market. And that's also why we're really -- I'm glad that we still continue to have a very stable margin and increase our profitability because in this climate where we have increased costs for salaries and for fuels that we singled out. And with not -- of course, we wish some higher growth, but still we can continue to increase our profitability and have a stable margin, which is important for us, of course.

Very good. And just some details here on store openings. Can you quantify how many store openings you're looking for in Q3? And also if -- you mentioned another City Gross conversion here later this year. Do you think that -- are you happy then? Is this this kind of the last of the initially planned store conversions? Or do you think that there could be room for additional City Gross stores to be converted?

So we made 7 new stores this first period, and we are aiming towards the 10 to 15 new stores for the year. And those are incremental 10 to 15 and for City Gross, we are continuing in the structural changes we're doing. So it can be more.

The next question comes from Daniel Schmidt from Danske Bank.

A couple of questions from me. And you talked about sort of price being at the top of the agenda still for consumers. Or is there any sort of change in consumer preference at all you think given the performance of line you clearly, when it comes to the comp base and so on, is there any sort of feeling that location is back a bit higher on the agenda again, and inspirational assortment and all that for the consumer in Sweden?

It's still a little bit early to do any large conclusions since we also in the quarter have Easter, we have mid-summer. But we see in the market as a whole, a stronger volume growth since the reduced -- and we also see increased growth in sustainability label products and also fruit and vegetable, which we haven't seen for now a couple of years. So that's really -- we're happy to see that. So we have some mixed effects regarding sustainably labeled and also fruit and vegetable. However, we see still a very strong focus in price awareness and -- and that comes together also from the consumer, but also in that competition in the market, I would say.

Okay. But given the first thing you're saying here, is that also why you feel that with the 5.0 converted stores are are they surprising you positively? Or do you expect a good sort of outfall outcome of those conversions?

The outcome of that is Willys 5.0 you asked no?

Yes, which is bringing more inspirational and shopping experience.

Yes. So we work very systematically with our development on new store concepts. So we start with making a store concept. We test it, we do pilots, and we do say we do changes until we think it's 100%. And then we escalate the scaling up of them. So regarding the Willys 5.0, we did this last year. And so we feel pretty sure now that they are really delivering. So we see now when we more than a store, we get really good results of that. And also when we do establish new stores, we do them in the new store concept, and they take a really good market share from a very good start. And 1 other thing that is within Willys, they have high comparison figures this quarter. However, we see that we continue to attract new customers. So we reached the milestone of over 4 million customers in the Willys Plus loyalty program, which is a good receipt that the customers continue to like Willys.

Yes. And of course, when you talk about short term is sort of to strengthen growth in Willys and targeted technical measures or tactical measures, sorry, it sounds more like increased promotional activity rather than converting really store to 5.0% in a faster pace, so maybe that's not doable. Is that the right interpretation?

I would say Willys has a really, really strong position. And we have -- we continue to invest strategically in a modernizing the stores and also establishing new stores. For us, it's more about the short-term shorter-term tactical measures that we are addressing now. So we feel really secure in the Willys concept, the new stores that we're establishing, the new concept, and we will continue to invest in that. And then we do some tactical measures now in the shorter term.

Okay. And is there any way to mitigate the fuel price hit that you took in Q2 and just looking at HVO prices, they are about the same level now as they were in Q2, and you talked about converting to electricity-driven transports, and you've done a lot in the past year, is there any way to speed that up?

I think we have a plan on how to invest in transport and we have the goal of reaching 50% of our fleet -- electricity rate of 50% of our fleet to 2030. So we continue to work according to that plan, actually. And then I would say that the margin that we continue to have a stable margin in this market where we have deflation, and also increased -- food price deflation, increased costs. I think that's a good proof of how we work with cost efficiency within -- and how also our new logistics platform actually is delivering.

Okay. And on costs, finally, group cost surprised positively far below last year and for low what I expected at least what is the true baseline here? What is sort of -- what is the right modeling going forward?

It's quite hard to give you an exact baseline here, Daniel. But -- and as you know, it can differ from quarter-to-quarter. But it's clear that we now are on a new level compared to previous years, and we see effects on the efficiency programs that we did last year.

Okay. it's a good indication of what to expect in the coming quarters, what you did in Q2.

Yes. It's not far away, I would say.

The next question comes from Magnus Raman from SB 1 Markets.

Most topics have been discussed here, but maybe I could just ask again about these tactical measures that has been discussed, do you see that competition have been implementing these tactical measures and that you want to follow those or is it in proprietary measures?

I always think that we have distinctive concepts and each of our concept has their own way of doing things. So it's not about just copying what others doing. So it's about taking technical measures regarding customer insight that we have for the Willys customers and addressing them very, I would say, targeted to drive more traffic.

Right. Then on the price competition that has been discussed as well, and you mentioned it remaining high, still isn't it fair to -- or haven't we've been living with an extraordinary circumstance in Q2 given the freezing of prices amid the halving of the VAT. And do you think that this sort of frozen price picture will remain in the second half of '26? Or would that be fun frozen, so to speak, now going forward?