Distribuidora Internacional de Alimentación, S.A. (DIA) Earnings Call Transcript & Summary

Good morning, everyone. I'm Alberto Valdes, Head of Investor Relations. Thank you for joining us for the first half 2026 results presentation. Before we begin, I would like to draw your attention to the disclaimer on Slide 2, particularly regarding forward-looking statements and market risks. Today's presentation will also include certain non-IFRS metrics that provide a clearer view of our underlying performance. Today's presentation will be led by Martin Tolcachir, our Group CEO; and Guillaume Gras, our Group CFO. After their remarks, we'll open the floor for a Q&A session. I'll now hand things over to Martin. Martin, the floor is yours.

Thank you, Alberto, and good morning, everyone. I am very proud to present what is a truly remarkable set of results for the first 6 months of the year. These figures validate the strength of our proximity model and the real impact of our strategic plan. DIA Spain consolidates its position as our main engine for growth. It delivered an 11.6% increase in total sales, double the market average and gained 26 basis points in market share. In the meantime, DIA Argentina is maintaining the stabilization trend that began in the second half of last year and is ready to capitalize on the gradual recovery expected in food consumption. In Spain, our strong sales growth is driving operating leverage. This generates a 17% increase in adjusted EBITDA and an 18% reduction in net financial debt. At the same time, Argentina's resilient performance and strict financial discipline are protecting its competitive position and self-funding capacity in a stabilizing macro environment. Ultimately, our focus remains on delivering long-term value to our shareholders throughout profitable growth, organic expansion, operational excellence and financial discipline. Now let's look at this in greater detail, starting with the Spain on Slide 6. DIA Spain closed the first half with a total sales growth of 11.6% year-on-year, reaching EUR 2.95 billion. This impressive performance was driven by an 8.4% increase in like-for-like sales and a 3.2% contribution from our organic expansion plan. Most notably, this is a high-quality growth. We achieved a comparable volume increase of 8%, driven by a larger customer base and more visits to our stores. Note that our low-price inflation is driven by change in our product mix and private label penetration rather than any price investment. We are growing twice as fast as the rest of the market. This allowed us to gain 26 basis points in market share year-on-year, consolidating our position as the fourth largest national player and our leadership in proximity segment. What is driving this sustained growth momentum is our unique value proposition as illustrated on Slide 7. First and foremost is the value of proximity. The neighborhood supermarkets is the most dynamic segment in food retail, and DIA has an unparalleled network of over 2,400 stores. Our compact supermarket format is optimized for convenience with an average of 450 square meters located within a 10-minute walk for our customers. In this space, we offer a complete and balanced assortment. A key portion of our more than 5,000 SKUs is dedicated to locally sourced fresh product and our top-quality private label products are paired with leading brand alternatives, always giving our customers the freedom to choose. In the end, our proposition meets growing consumer demands for time and budget optimization without compromising on quality. This approach has built a very strong base of over 6 million active loyal customers. Most of them interact with us digitally via our app, which offers a smooth and personalized shopping experience. The number speaks for themselves. Club members spend more than twice as much as nonmembers. Our digital channels are the perfect complement to our physical stores. We have one of the fastest e-commerce platform in the market with same-day delivery covering 85% of the population. The success of our customer-centric strategy is clearly seen in the performance of our key products as shown on Slide 8. Our focus on locally sourced fresh produce and high-quality affordable DIA private label products generate a strong 14% sales growth in both categories. In few words, our fresh products brings traffic to our stores and our private label products drive loyalty. Once customers try our brand, they keep coming back. Turning to Slide 9. You can see how this loyalty translates into our omnichannel performance. The Club DIA customer base continued to grow and now represent 57% of total sales, a 13% increase year-on-year. At the same time, our native online platform achieved a 16% year-on-year growth. This strong performance successfully offset a temporary slowdown in third-party channels. Specifically, sales through the Amazon platform dropped by 23% in the first half. In this regard, I want to announce a strategic decision. Starting this month, we have ended our partnership agreement with Amazon. This was a pioneer alliance that was key for our early digital transformation. However, at this point, it was limiting the growth of our own platform. By concentrating our online business entirely on our own channels, we will gain efficiency and deliver a better customer experience. We have a clear migration strategy in place, allowing customers to transfer to our own platform while minimizing the impact on revenue. In terms of EBITDA margin, the strategy is clearly beneficial. While we refine our digital model, our physical footprint remains our core growth engine. Turning to Slide 10. Let's review our expansion plan. We are leveraging our scalable franchise model to accelerate the rollout of our new stores in high potential locations. Today, franchisees manage 69% of our network in Spain. They are strategic partners who bring entrepreneurial talent and local customer knowledge to our value chain. We provide the infrastructure, the products and the logistics. They lead the day-to-day operation in their neighborhoods. This division of role maximize productivity per store and share success. Franchisee satisfaction is reflected in an excellent Net Promoter Score of 75. During the first half of the year, we opened 58 supermarkets and closed 10. These 48 net openings nearly double last year figures, bringing the cumulated net openings to 104 since the launch of the strategic plan last year. We are well on track to meet our goal of opening 100 new stores this year and to reach our medium-term target of 300 stores ahead of schedule. To optimize our logistics, we prioritize high-density regions such as Madrid and Andalucia. By focusing on neighborhoods and smaller towns, we are able to capitalize on our asset-light model. This expansion contributes over 300 basis points to our sales growth in the first half. Of course, adding more stores means we need a stronger infrastructure to support them. As you can see on Slide 11, operational efficiency is just as important as top line growth. Last month, we opened our third next-generation logistics platform in Leon. This 64,000 square meters facility is highly efficient and strategically located. This modern platform support volume growth, improve operating leverage and mitigate rising transport cost. We are already building our fourth hub in Malaga, keeping us on track to upgrade 6 of our logistics platforms by 2029. This commitment to modern and efficient operations goes hand-in-hand with our sustainability goals as detailed on Slide 12. Our ESG agenda is closely linked to our corporate strategy, focusing on operational efficiency, inclusivity and shared value. A key action here is upgrading the refrigeration equipment in our stores to improve energy efficiency and decarbonization. To date, 55% of our store network has been decarbonized. We are also moving forward with our food waste prevention plan and expanding our partnership to promote healthy habits to bring quality food to where it's needed most. I am proud that our progress is being recognized by independent third party, highlighted by our 58th position in the prestigious Marco ranking. Now let's shift to Argentina's performance on Slide 14. Despite a challenging macro environment, the business continued to show great operational resilience. While the year-over-year comparison shows a 4.6% decline in volume, the sequential trend confirms the stabilization trend that began in the second half of last year. This was supported by a 10-basis point market share gain in like-for-like basis. To understand where we are heading, look at Slide 15. With major subsidy cuts and public sector reduction now complete, the stabilization of Argentina's economy is expected to enable a gradual recovery in food consumption. Moving to Slide 16. DIA Argentina is well positioned to capitalize on this scenario. We are the clear leader in proximity retail, operating nearly 1,000 stores and holding a 27% market share in Buenos Aires. DIA is a highly recognized brand, ranking #1 for value for money. Our private label achieves excellent penetration at 35%, and we have a highly engaged base of over 4 million loyalty members who generate 68% of total sales. Looking ahead, our strong competitive position and lean cost base should drive operating leverage and cash generation as consumption gradually improves. I will now hand you over to Guillaume, who will analyze the performance from a financial perspective.

Thank you, Martin, and good morning, everyone. Let's begin by looking at how Spain's commercial success is translating into strong financials on Slide 18. Robust sales is driving operating leverage, generating a 17% increase in adjusted EBITDA, up to EUR 160 million. This is a remarkable 30 basis point margin expansion to 6.5% achieved despite the challenge of rising transport costs. At the bottom line, DIA Spain's net income rose 6% year-on-year to EUR 51 million despite the adverse comparative effect of a nonrecurring tax benefit of EUR 9 million in the first half of 2025. Excluding this effect, DIA Spain's net income increased by 30%. The strong profitability directly fuels our cash generation, as you can see on Slide 19. Cash flow from operations reached EUR 172 million. This is a 5% year-on-year increase despite the adverse comparative effect of a one-off tax refund of EUR 33 million in the first half of 2025. Excluding this effect, DIA Spain's operating cash flow increased by 30%, driven by operating leverage and favorable working capital seasonality at the start of the summer. Most importantly, the strong operating cash flow is fully funding our higher expansion CapEx while allowing us to increase our cash balance by another EUR 45 million. Note that this expansion CapEx is highly disciplined. Our new stores are delivering fast payback periods and a strong return on capital employed, ensuring that our expansion is highly value-accretive for shareholders. As a result of this cash generation, on Slide 20, you can see a significant improvement in our credit profile. DIA Spain's net financial debt dropped by 18% to EUR 206 million. This brings our financial leverage down to a very conservative 0.6x adjusted EBITDA. This excellent leverage profile, together with a strong cash balance of EUR 345 million gives us maximum financial flexibility ahead of the refinancing window, which opens next year. Turning now to the financial performance of DIA Argentina on Slide 21. You will see that the lower volume translated into a 12% year-on-year sales decline in reporting currency due to a 37% average appreciation of the euro against the peso, more than offsetting food inflation. Still, the strong efficiency measures we implemented successfully protected our adjusted EBITDA, which stood near breakeven with a 30-basis point improvement year-on-year. Finally, on Slide 22, we show how we are protecting the business self-funding capacity. Strict capital discipline allowed the Argentina business to end the period with a net cash position of EUR 40 million. We are currently executing a sale and leaseback operation for a logistic platform and some store real estate that will bolster DIA Argentina's net cash position by over EUR 10 million. The business also has access to EUR 75 million in local credit lines, providing an additional liquidity backup. Now I will hand the floor back to Martin for his closing remarks.

Thank you, Guillaume. To conclude our presentation today, let's consider the closing remarks on Slide 24 before we open the floor to your questions. Our first half results confirm the success of our proximity model and the real impact of our strategic plan. Our sustained growth momentum in Spain is driving operating leverage and strong cash flow generation. This allows us to accelerate our organic expansion plan moving well ahead of schedule. At the same time, we are protecting DIA Argentina's competitive position and self-funding capacity to capitalize on the gradual recovery expected ahead. The progress of our growing everyday strategic plan is more visible today than ever before. Our customers trust us, knowing that we are by their side in every neighborhood and online, making their lives easier. We are continuing to grow profitably, accelerating our organic expansion and strengthening our operational excellence while maintaining solid financial discipline. In short, we are building a stronger company every day and creating sustainable long-term value. I would like to express my gratitude to all our teams, suppliers and franchise network. Thanks to their efforts, we are successfully translating our strategic plan into tangible results for our customers, our business and our shareholders. Thank you for your attention. We are now open to your questions.

[Operator Instructions] We have the first question coming from Luis Colaco from JB Capital. It seems Luis is having some problems with the line. [Operator Instructions] The next question comes from Juan Rios from Banco Santander.

I don't know if you can hear me because I'm facing some problems as well. On the impressive performance in Spain, 2 questions from my side. So first, in terms of openings, you are already very close to the guidance for the year. So I wonder which will be the pace for -- like the pace of openings for the remaining of the year? And also if you can maybe provide some details on the economics of these new stores? And then my second question is that this strong pace of openings, along with the strong top line growth that you are seeing in Spain makes the current strategic plan to look a bit conservative. So are you then planning to maybe update this plan at some point this year?

All right. Thank you, Juan. Very good questions. The first one regarding our store expansion plan, maybe it's a good question for Guillaume. And the second question regarding the potential upgrade of our strategic plan is maybe better for Martin. Guillaume, when you're ready.

Yes. Thank you, Alberto. We've opened 58 stores during the first semester. As announced, we plan to open 100 net stores this year, representing a 78% year-on-year increase. In terms of CapEx, this represents a total EUR 100 million invested CapEx in the first semester, all included, not only inspection. And for the rest of the year, we plan the same amount of CapEx. Remember that this CapEx is fully financed by our operating cash flow, enabling us to maintain low financial leverage throughout our strategic plan.

Very clear, Guillaume. Thank you. Martin, can you answer the second question regarding the potential upgrade of the Spain plant?

Sure. And thank you, Juan, for your question. In fact, our strategic plan was launched just 1 year ago. Right now, our priority remains focused on disciplined execution and building on consistent track record with the market. That being said, we are indeed accelerating the rollout of our store expansion, targeting, as Guillaume said, over 100 new stores opening this year. At our current run rate, we are effectively on track to reach our expansion goals well ahead of schedule. Therefore, as we progress into 2027, we will have the sufficient visibility to assess a potential upward revision of our midterm targets.

I think Luis has been able to connect again. Luis, please go ahead with your questions. No, it seems not. Luis, please keep on trying, and we'll try to help your problems. There is another question coming from Pablo Fernandez from Renta Quatro.

Can you hear me?

We can hear you now, Pablo. All right. I think -- well, it looks like we're having some trouble with the telephone line. Fortunately, analysts are sending me the questions via WhatsApp. Well, we have several questions. We've got one from Marisa Mazo from GVC Gaesco. She's asking about the potential of debt refinancing. How much would be the saving potential? And also what date are we considering for this? I think it's a suitable question for Guillaume. Guillaume, when you're ready, please?

Yes. As you know, the syndicated facility we signed in 2024 includes a standard 2-year no-call protection secured by make-whole provisions. However, starting in 2027, the make-whole expires and the call premium gradually steps down. So that gives us the flexibility to refinance when the conditions are right. Ultimately, our goal is to align our cost of debt with the group's strong credit profile, reducing our interest expense and regaining flexibility over our capital allocation.

Thank you very much, Guillaume, very clear. We have another question coming from Marisa regarding Argentina's net cash position and about the reduction in EUR 20 million of this cash position during the first half and our prospects for the business remaining self-funded. This is another question, I think, for Guillaume. Guillaume, when you're ready, please.

The EUR 10 million in fixed asset classified as held for sale in Argentina correspond to a warehouse and select store real estate. We are currently structuring a sale and leaseback transaction for these assets. And as you know, DIA Argentina closed the first half with a net cash position of EUR 40 million. So looking ahead, the proceeds from this transaction, combined with the expected positive working capital inflow and our strict financial discipline should further strengthen our net cash position by year-end.

Very clear, Guillaume. Thank you. We have 2 final questions from Marisa. First, regarding the deferred tax assets in Spain, if you could update us on how much is left to be accounted and also regarding the working capital in Spain. So when you're ready, Guillaume.

So regarding the income tax, as guided, the effective tax rate of DIA Spain in the first semester was below 20%. Our effective tax rate should remain below 20% in the medium to long term. DIA Spain still has deferred tax assets totaling almost EUR 200 million pending activation that will not expire. We plan to activate this asset progressively over the coming years, which will result in an effective tax rate below the 20%. Now regarding the second point about the working capital change. The positive working capital seasonality of DIA Spain at the start of the summer resulted in a EUR 41 million inflow in the first semester. We expect the strong working capital inflow in the first half of the year to be partially offset in the second half due to the same seasonality effect. In any case, we expect to close the year with a net working capital inflow due to higher year-on-year sales.

Thank you very much, Guillaume. Very clear answers. We have also received questions from Bruno from CaixaBank. The first one is regarding the margin expansion in the first half. If we can provide more color on the building blocks for DIA Spain. I think this is a good question for Martin. Maybe when you're ready, Martin, please.

Sure. In H1 '26 in Spain, our gross margin experienced a 20-basis point decline. It is important to note that this is -- this was entirely driven by a mix effect resulting from the growing penetration of our franchise operating stores. As a reminder, while our franchise model is mechanically dilutive at the gross margin level because we share that profit with our partners, it is highly accretive at the EBITDA level. This is clearly reflecting our adjusted EBITDA margin, which reached 6.5% in the first half, a significant 30 basis point expansion. This is -- this remarkable performance was driven by a strong operating leverage and rigorous cost discipline completely offsetting the headwinds from rising transportation costs.